Domino Effect

April 24, 2008 (LBO) – Sri Lanka’s financial regulator Thursday told finance companies to carefully monitor liquidity and be more aware of risks to ensure they survive the current financial markets turmoil. This was because the collapse of one firm could have a domino effect on the whole system, Central Bank governor Ajit Nivard Cabraal warned.

Sri Lankan companies cannot see themselves as being isolated or immune from the financial turmoil in the world markets today, he told directors of registered finance companies at a seminar.

So it would be wise for them to be aware of the risks and be “a step ahead,” Cabraal said.

The meeting was organised by the central bank to make directors of registered finance companies aware of regulation and their governance and legal responsibilities.

“What would happen if a finance company fails?,” Cabraal asked. “Do you think the depositors would remain happy and think that only one company failed and would continue as before?”

He recalled Sri Lanka’s financial crisis in the 1980s when several finance companies collapsed causing misery to thousand of depositors who lost their money.

Critics have pointed out that the collapse was caused by mone