In addition, the general public too is kept informed of matters relating to consolidation through regular press communiqués to ensure maintaining the transparency of such policy measures as well as the public confidence. BIS central bankers’ speeches  9  Meanwhile, the Technical Assistance Team is entrusted with several duties including evaluating the consolidation proposals, studying and recommending solutions on technical aspects, particularly on legal, accounting, banking and tax, formulating guidelines to facilitate the consolidation process and arranging funding through the “Sri Lanka Deposit Insurance and Liquidity Support Scheme” (SLDILSS). The service of this internal Technical Assistance Team is highly rewarding, since, if such assignments were to have been outsourced, it would have taken a longer time period in addition to having to incur exorbitant consultancy fees. Step 3: Preparing the master plan for financial sector consolidation The Master Plan on the financial sector consolidation was prepared by the Consolidation Unit with the objective of developing a strong banking and NBFI sector with enhanced resilience to internal and external shocks in order to cater to the growing demands of the economy. Let me now explain the key components of the Master Plan. First: Institution-wise strategies We have designed a comprehensive strategy for the banks and NBFIs to transform their institutions to cater to the future needs while maintaining the stability of the system. Under this broader strategy, we have sector-specific strategies, designed separately for state banks, other domestic private sector banks, foreign banks and NBFIs.

Pre-crisis, monetary policy in the advanced economies was essentially defined by inflation targets and a key instrument, the interest rate. In parallel, the goal of financial stability was chiefly addressed with microprudential regulation and supervision. This framework was broadly consistent with the goal of economic growth, given that the control of inflation was 3/7  estimated to be the best means for ensuring the economy drew closer to its potential growth. The crisis showed that this framework was no longer valid. The control of inflation, though it remains a necessary condition, is not sufficient to ensure growth; and microprudential regulation was no longer effective, in or of itself, for guaranteeing financial stability. As a result, central banks have adapted their policies, which are now more complex in terms of objectives and instruments. Monetary policy has had to face up to the problem of what is known as the “zero bound” on interest rates. Basically, this is the situation that Keynes coined the “liquidity trap”: interest rates close to zero cease to be an effective monetary policy instrument. This has led to the development of new instruments, so-called “unconventional monetary policy”, which mainly includes quantitative easing, private and public-sector financial asset purchases, and the explanation and signalling of the monetary policy to be applied in the future, namely “forward guidance”. The outcome has been a large increase – four- or fivefold – in the balance sheet of the main economies’ central banks.