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Keynote Speaker: Dr' Marcus Lee

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Chairman, Risk Management & Foreign Exchange Committee, DAG Asset Management LLC, ... costly stagflation, contraction in trade and disorderly oil and food markets. ... – PowerPoint PPT presentation

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Title: Keynote Speaker: Dr' Marcus Lee


1
Keynote Speaker Dr. Marcus Lee
  • Vice President, DAG Investment Bank LLC, New York
  • Chairman, Risk Management Foreign Exchange
    Committee, DAG Asset Management LLC, New York
  • Chairman, China Private Banking and Wealth
    Management Forum 2007, Shanghai
  • Keynote Speaker APEC, ASEAN Summit
  • Author How to Outsmart China - Sold in over 40
    Countries. Featured in Bloomberg and CNN
  • Speak 4 languages and 5 Chinese dialects
  • EMBA Visiting Professor of Finance, City
    University of New York.

2
Worst has yet to come?
3
Strategies and Mechanism to achieve Financial
Stability The 11th Asia-Europe Business Forum,
2008
  • Dr. Marcus Lee
  • Vice President China Chief Representative
  • DAG Investment Bank (New York) LLC

4
1. Financial Stability Outlook
5
Financial stability outlook
  • Risk of financial system have increased in 2008
  • IMF 2009 projection 0 to negative
  • Remain uncertain and depends on 3 factors
  • 1) How conditions in the US market?
  • 2) How banks respond to the challenge?
  • 3) Worst case scenario?

6
World Economy
  • Suffer from High inflation
  • Overly expansionary monetary policy in US
  • -Negative real interest rate
  • -Depreciating USD -run from USD
  • -Reversal of Capital Flow and Currency Turmoil
  • Low interest rate discourage saving, bond yields
    and cause investor to seek higher yields in
    speculative commodities and forex market.
  • Hence, energy and food price exploded to levels
    of threatening social and economy.
  • -41 of total international reserve (end of 2007)
  • America can maintain a large trade deficit only
    if foreign banks continue to hold a large number
    of dollars in their reserve currency. US entire
    consumption economy is based on the willingness
    of foreigners to hold US debt. A new world order
    is required.

7
China Economy
  • Pressure of inflation.
  • GDP Growth 9.7 (2008) 9.3 (2009)
  • Window guidance and credit policy guidance were
    strengthened, limit lending to low efficiency
    enterprises
  • Slowdown of US economy affect Chinas export.
  • Industries affected - most rely on export in
    China Electronic appliances 65, Office
    appliance 50, Fur production 47, Furniture 46,
    Fashion apparel 44, rubber 26
  • Financial Stability in Credit, stock market

8
Medium Term outlook
  • 1. Commodity and Food price remain high despite
    recent declines.
  • 2. Risk of broad based second round effects in
    wage and price setting, especially in emerging
    economies

9
Real Economy Impact
  • Affect GDP growth
  • Affect Employment
  • From Financial Crisis to long term real economy
    crisis
  • Affect spending power

10
Existing Mechanism
  • Short term
  • 1) Domestic Policies
  • 2) Private Sector New loans, credit lines
  • 3) International Backup IMF Supplemental
    Reserve Facility, SDR but rigid condition
  • Long term
  • 1) Reform Programs
  • 2) Enhancing Financial Governance
  • 3) Social enhancement
  • 5) Steps towards sustainable finance - GRI

11
2. Enhancing the Surveillance Framework
12
Macro-Surveillance Framework
  • Lost of Confidence
  • More Bank Bankruptcy expected.
  • Derivative Markets (trade in future and options
    equity) now deal with over 47,000 different kinds
    of options.
  • Enhancing Financial Governance not a luxury but
    basic requirement. Timely and clear financial
    reporting, Independent assessors along with
    strong judiciary.
  • Early identification of emerging risk and threats
  • Pre-emptive measures
  • Framework and infrastructure development,
    capability enhancement, governance structure and
    communication.

13
Vulnerability Indicator for Banking Sector
  • 1) Selection of Risk indicators
  • 2) Construction of vulnerability indicator
  • 3) Assessment of future vulnerability and stress
    testing. Disclosure of off-balance sheet
    activities.

14
Financial Stability Surveillance
  • 1. Micro-prudential Micro level assessment of
  • -risk areas and risk management practices
  • -business strategy and governance issues
  • -risk absorbing capacity
  • 2. Macro-prudential Macro level assessment of
  • -exogenous and endogenous risk and
    vulnerabilities
  • -contagion effects, transmission channels and
    impact on financial institutions and systemic
    stability.
  • -Supervisory role of IMF, Basle Capital Accord,
    BIS, FSF, Financial Sector Assessment Program (WB
    and Govt)

15
Action to be taken
  • 1. monitoring macro-financial linkages associated
    with developments and emerging trends in the
    external sector, domestic economy and financial
    markets, corporate and household, contagion
    implication to financial system.
  • 2. monitoring and evaluating the development of
    sector specific issues within the financial
    sector and the potential implications for overall
    system wide stability.
  • -Guarantee of bank deposit by Central bank

16
3. Mechanism for Emergent Financial event
17
Emergency financing mechanism
  • Failure of IMF Supplementary Reserve Facility
    (SRF) borrow, invest, export, repay IMF may
    lack of resources, WB, ADB, ADB consessional loan
  • Objective Ability of fund respond to crisis for
    member countries
  • Focus on emergency procedure rather than a new
    financing mechanism suggested by last year
    Chairman Statement.
  • Exceptional procedures Rapid approval of fund
    support
  • supplementary resources

18
Precautionary cooperation framework
  • Moral hazard limited to truly exceptional
    circumstances
  • Not be a guarantee against sovereign default.
  • Importance of strengthened fund surveillance
  • Members responsibility to come to the fund early
    with a strong and comprehensive economic program
    to limit cost of repair.

19
Criterion to regional financial conducts
  • Suggestion limit the use of emergency procedures
    to situation involving significant spillover or
    contagion effects

20
Process of Implementation
  • 1. short report to EB current economic situation
  • 2. level and phasing of access, the likely Impact
    on the funds liquidity and possible need to
    activate borrowing arrangement, changes in
    timetable etc.
  • 3. Briefing guidance for EB to direct action
  • 4. consultation with other creditors if needed.
  • 5. 48-72 hours consider. Once agreed execute
    within 5 working days.

21
Conclusion
  • Mounting inflation and financial disorder would
    inflict costly stagflation, contraction in trade
    and disorderly oil and food markets.
  • Ultimately, global financial security is not
    about stability and wealth generation for their
    own sakes but creating a system of transactions
    that enhances the livelihoods of people and
    natural environment, both for now and future.

22
Thank you
  • Dr. Marcus Lee
  • Vice President China Chief Representative
  • DAG Investment Bank (New York) LLC Shanghai
    Office
  • 500, North Chengdu Road, Junling Square, 37
    floor,
  • Huangpu district, Shanghai 200003,
  • The Peoples Republic of China
  • Tel (8621) 6103-4852
  • Fax (8621) 6103-4800
  • Email drmarcus_at_yahoo.cn
  • Website www.dagbank.com

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