Transcript
The global economic crisis has once again raised the issue of regulation stressing its vital importance to the stability and growth of world economy.
Together with the Israeli securities authority the Tel Aviv stock exchange is proud to co-host the annual IOSCO conference in Israel.
We took this opportunity to talk with some of the leading participants to share with us their insights and views.

How would you summarize the key messages of the IOSCO conference?

Martin Wolf: It seems to me that the main message is that we are in the middle of an extraordinary financial crisis. This crisis clearly has the most profound implications for regulation. Regulation failed, it's perfectly obvious that it failed, and that means that we need very profound reform.

Prof. John C. Coffee Jr.: Well, I think the key theme that is uniting most of the participants in this conference is how do we address the new problem of systemic risk. And systemic risk is this danger that the financial failure of one institution can cause a cascading scenario defaults until the end of the process we've had the whole financial system melt down.

W. David Wilson: Away from the banking system, the financial system, the markets actually preformed remarkably well through the crisis. There were always prices, there were transactions. Yes, they went too high in the beginning, before the crisis hit, and may have gone down too far during the panic phase of the crisis in September – October last year but markets did continue to function.

Jane Diplock: One of the main messages that's emerged is a realization that markets will not… cannot be left to discipline themselves. That in fact there needs to be a balance between appropriate sensible regulation and marked disciplines going forward. And I think that there was a presumption by many people, including many regulators, that markets could be allowed to discipline themselves. We now know that's that not so.

Did the Israeli capital market face the same problems that occurred in the international markets?

Prof. John C. Coffee Jr.: Israel has been relatively spared in this crisis. It's not been one of the countries that had been moved rack by the financial crisis. And I think that's both because Israel did have a fairly conservative banking system that wasn't experimenting with asset back securitizations or financial engineering to quite the same extent as some of the companies in the US and the UK. So overall even though it's been unpleasant for every country, I don't think you had quite the same painful experiences as some other economies today.

Prof. Zohar Goshen: Israeli regulation is a little bit stricter than the regulation abroad in the ability of banks to write off balance shits liabilities. And that's what kept the Israeli banks stable and not exposed dramatically to toxic securities like other banks in the world.

Martin Wolf: I think one of the most interesting aspects of this is that the crisis showed that the ultimate responsibility lies with national regulators and national tax-payers. There isn't a global regulatory system. There has to be global co-ordination, but the system as a whole is more of less as weak as the weakest regulatory link. So it's very important that all countries but any significant financial market's activity apply the agreed rules and that certainly includes Israel.

What are the major changes we can anticipate in the capital markets in view of the financial crisis?

Jane Diplock: Well, I think we've already seen… prior to the crisis we've seen a movement of capital to a number of emerging markets. To India and China, for example. I think that process will continue. But I don't necessarily see that because these markets are unregulated or under regulated, in fact, what we're seeing is an appetite for emerging markets to engage very fully in the implementation of the IOSCO principals. And I think investors are also looking for well regulated markets to invest in, and I think that's one of the other lessons that are coming out of this crisis.

What is your impression of the Israeli capital market?

Prof. John C. Coffee Jr.: Israel is the 2nd largest source of firms outside the US that are listed on the US stock exchanges. Only Canada, our next door neighbor, has more listings on the US exchanges. Also it's the source of basically high-tech and bio-tech firms that are listed on the US market. So I would classify Israel as a much more mature market.

Prof. Zohar Goshen: The strengths of Israeli economy are that it is a small economy. It's not heavily dependent on any specific market, so the ability to recover fast is much greater than with larger economies, the ability to switch from one activity to another activity is much greater in such an economy and our markets are much more flexible. The regulation that we have adopted have shown a right balance between an attempt to harmonize regulation with the world and still tailor made regulation that would fit the specific problems and the unique situation of Israel.