Global financial stability hinges on collective action at the international level, as well as the existence of effective national systems. Financial stability is also closely linked with financial integrity. The lack of anti-money laundering and the combating of the financing of terrorism, or AML/CFT regime, can contribute to undermine the soundness and stability of financial institutions and systems, discourage foreign investment, and distort international capital flows. The global financial crisis amplifies such risks. In fact, 2009 is anticipated to be another highly challenging year, in which the full impact of the economic slowdown will continue to be global in nature. In this more fragile environment, problems in one country can quickly spread to other countries in the region or in other parts of the world. This, therefore, brings us to the first theme of my speech that is for everyone to remain vigilant. In the financial sector in particular, financial system and institutions should continue to  BIS Review 46/2009  1  support the economy and protect it from abuses, including by money launderers and terrorist financiers. For Malaysia, the Government has recently announced a RM60billion stimulus package, i.e., the second stimulus package, and we expect to see its full impact during 2009 and 2010. We are quite fortunate that the banking system entered this difficult period from a position of strength. It is important to have a high level of vigilance to ensure that the banking and finance sector continues to support the economy.

This aimed explicitly to support lending and activity in the real economy, “the activist goal of liberalizing bank examinations to make them dynamically adjustable to current economic policies”.8 It worked. Lending and growth resumed. 8  6  Simonson and Hempel (1993). BIS central bankers’ speeches  In the period since, the first two arms of macro-economic policy – monetary and fiscal – have been used actively. The third – macro-prudential – has been tied behind policymakers’ back. The crisis of the past few years has highlighted the need to free the macro-prudential arm of policy. As in the 1930s, macro-prudential policy may have a role to play in shouldering the heavy burden of damaged balance sheets and diminished risk appetites. References Akerlof, G, and Shiller, R (2009), “Animal Spirits: How Human Psycology Drives the Economy, and Why It Matters for Global Capitalism”, Princeton University Press. Barro, R (2006), “Rare Disasters and Asset Markets in the Twentieth Century”, Quarterly Journal of Economics, 121 (2006), pp. 823–866. Cogley, T, and Sargent, T J (2008), “The Market Price of Risk and the Equity Premium: A Legacy of the Great Depression?, Journal of Monetary Economics, Volume 55, Issue 3, pp. 454–476. Graham, J R, and Narasimhan, K (2004), “Corporate Survival and Managerial Experiences During the Great Depression”, Working Paper. Haldane, A (2011), “Capital Discipline”, available at http://www.bankofengland.co.uk/publications/speeches/2011/speech484.pdf. HM Treasury (2010), “A new approach to financial regulation: judgement, focus and stability”, July, available at http://www.hm-treasury.gov.uk/d/consult_financial_regulation_condoc.pdf.