Abu Dhabi (February 29, 2011) 
Paul Volcker, former chairman of the US Federal Reserve System and economic advisor to President Barak Obama, said today that the financial crisis of 2009 is partly a result of banks steering away from providing core banking services and using customers' assets to support their speculative activities.

A keynote speaker at 2012 Global Financial Markets Forum (GFMF), Mr. Volcker said prior to the crisis banks increasingly took on functions beyond the core services provided by them, such as engaging in speculative trading.

"Banks took on other functions and this complicated the system," Mr. Volcker said.

As a result, he said, non-banks, which he called "shadow banks," engaged, without regulations, in activities that had been solely the realm of banks. An example, he said, are money market mutual funds.

The two-day 2012 GFMF, organized by the National Bank of Abu Dhabi's Financial Markets Division, began today and concludes tomorrow.

To reform the financial services industry, Mr. Volcker has proposed a set of rules, known's as "Volcker Rule," that included restricting commercial banks from proprietary trading, which he has called "speculative trading" because it adds an unnecessary layer of risk. Essentially the proposed regulations would prevent banks from using customers' assets to engage in proprietary trading.

The proposed Volcker Rule applies to American banks and to American operation of foreign banks.

Mr. Volcker said the proposed regulations would not return the American banking system to the restrictions of the Glass-Steagall Act that prevented banks from engaging in trades. The new proposals would allow banks to underwrite securities on behalf of clients.

Nevertheless, Volcker Rule has been opposed by some financial institutions, including non-American institutions. Mr. Volcker said his proposals would not affect trade or credit rating.

Mr. Volcker began his keynote speech by noting that NBAD is ranked one of the World's 50 Safest Bank.

"This is why I like to model my speech on the accomplishments of the National Bank of Abu Dhabi," Mr. Volcker said.

Later in the day, Mr. Volcker told reporters that "NBAD must be in compliance with Volcker Rule."

Michael H. Tomalin, the Group Chief Executive, who was sitting with Mr. Volcker at the press conference, confirmed that even during the 2000s, NBAD did not buy speculative financial products and strategically has sought customers that deliver ancillary businesses.

"The National Bank of Abu Dhabi used its balance sheet to support customers," Mr. Tomalin said.

Mr. Tomalin, who offered the 2012 GFMF welcome address, spoke about UAE rapid and spectacular development since its founding and its strong economic fundamentals.

"There is a tectonic shift in the centre of economic gravity toward the East. After the Second World War, if we were to place the equilibrium point of the World with half the World economy one side and half the other, it would have run mid-Atlantic. By the 1980s, the equilibrium point may have been Vienna. Today, it runs through the Emirates Palace Hotel, right here in Abu Dhabi," Mr. Tomalin said. "Today, we sit in this World cockpit feeding the East with energy and intermediating trade and activity from the rest of the World into the region."

He continued: "The UAE economy is a beneficiary of this new paradigm and is in a strong position. Look at the airline industry. From Abu Dhabi or Dubai to almost anywhere else on the planet fly non-stop. A reflection of this strength is the large trade surpluses the country registers. In 2010, the UAE registered a trade surplus of US$ 51 billion or 17% of GDP. The estimate for 2011 is substantially higher given the average oil price of US$ 105 per barrel."

Mr. Tomalin said UAE's favourable factors, such as business and investor friendly climate, stable exchange and interest rates, free movement of capital, low taxation, capital mobility; and its well-placed policy to exploit its comparative advantages -such as abundant energy, and a connecting point between the West and the East - make it a peer of Norway, "another oil-rich, open economy."

However, Mr. Tomalin said the strength of UAE's strength is not fully recognised.

"This lack of recognition creates an opportunity for investors. I rate the UAE a strong buy," Mr. Tomalin said in conclusion.

The 2012 GFMF, held in Abu Dhabi's Emirates Palace, continues tomorrow with a keynote address by Axel Weber, the president of Deutsche Bundesbank, the German Central Bank, from 2004 to 2011, and a member of European Central Bank Governing Council.

© Press Release 2012