Broadlyspeaking, however, network dimensionality has no material bearing on CDS pricing. Chart 5 simulates a crisis world in which the default probability of Bank B has risen and so too the uncertainty around that probability. The difference is striking. Pricing uncertainty now increases with the dimensionality of the web. Extra counterparties add to, rather than subtract from, pricing distortions. There is a “law of large numbers” cost. That uncertainty cost, or Knightian distortion, is roughly proportional the dimension of the network. It is difficult not to draw comparisons with Lehman’s experience. Lehman had large CDS counterparty exposures relative to its balance sheet and hundreds of counterparties. AIG was similarly situated. It is little wonder participants took fright as both institutions came under stress, fearful not so much of direct counterparty risk, but of indirect counterparty risks emanating from elsewhere in the network. The network chain was so complex that spotting the weakest link became impossible. This added yet a further layer of fragility to the financial system. (d)  Innovation and stability  A fourth dimension to complexity in network chains derives from the effects of financial innovation. Over the past decade, this often took a particular form – structured credit – with risk decomposed and then reconstituted like the meat in an increasingly exotic sausage. The result was a complex interlocking set of claims. With each restructuring of ingredients, the web branched and the dimensionality of the network multiplied. Chart 6 shows some of the interlocking networks of structured products that emerged.

It may surprise some of you to know that there are fifteen Government Ministries and 38 Agencies involved in supporting the development of SMEs. The formation of the Council was therefore a mammoth undertaking that clearly signals the commitment of the Government to the SME agenda. The Council, chaired by the Prime Minister and supported by Bank Negara Malaysia as the Secretariat, provides the policy direction of the programmes to support the SMEs, and ensures the effective implementation and coordination of these programmes. The national SME strategy is focused on the development of high performance and resilient SMEs under three broad strategic thrusts, namely, strengthening the enabling infrastructure; enhancing the capacity and capability of SMEs; and enhancing access to financing. Bank Negara Malaysia has been at the forefront of initiatives to ensure that SMEs, at different stages of the business life cycle, have adequate access to financing. These included among others, initiatives to develop a vibrant and sustainable microfinance industry, the establishment of two venture capital funds of RM150 million each for the agriculture sector and the establishment of the Small Debt Resolution Scheme. The various measures have already yielded positive results. SMEs today have greater access to financing, with financial institutions being the main SME financing provider. In 2007, banking institutions approved RM55.1 billion in new financing to more than 109,000 SME accounts. SME financing continues to remain robust. For the first three months of 2008 alone, a total of RM12.4 billion in new financing was approved to more than 34,000 SME accounts.