Emerging markets have safety nets8217;

MUMBAI, FEBRUARY 7: Britain8217;s financial regulator on Monday said emerging markets had too many safety nets which could encourage banks and financial institutions to take too much risk. Howard Davies, Chairman of Britain8217;s Financial Services Authority, said such safety nets were the reason market mechanisms were not able to weed out poorly performing institutions in emerging markets.

quot;Excessive safety nets at the national level, including too extensive guarantees to depositors and a reluctance to take prompt action to deal with failing banks; this is seen as leading to banks8217; risk-taking being partly underwritten by the authorities,quot; Davies said while delivering a lecture on International Financial Regulation and Implications for Emerging Markets8217;.

Davies said internationally financial regulation was changing to give more reach to banking supervisors and there was acceptance of the need for external monitoring. A stable macro-economic policy, well-developed infrastructure for financial markets, marketdiscipline, procedures for efficient resolution of problems and limited safety nets were prescribed by the Basel Committee for effective supervision of banking, Davies said.