This will lower compliance costs for financial institutions, arising from having to satisfy different regulatory and legal regimes in different countries. Unfortunately such harmonisation is extremely difficult, even if we confine ourselves to a small subset of countries. The issues are far too intricate and complex to be resolved in a multilateral setting. Institutional structures, market practices and philosophical approaches differ from country to country. And each country guards its regulatory powers jealously, and wants the freedom to set and enforce its own rules. The multiple national regulators that exist in the European Union are a good example. Short of complete harmonisation of regulations, one practical approach to pursue is mutual recognition of regulatory regimes. Mutual recognition need not be all or nothing. It can be applied to specific areas, starting from cross-border offerings of financial products such as collective investment schemes and suitable initial public offerings. Institutions can save half or more of their compliance costs, if they only have to comply with one set of regulations recognised by both regulators. This benefits both markets by deepening liquidity and broadening product offerings. Singapore has participated actively in international efforts to harmonise regulations and policies across jurisdictions. As a small country, our ability to push the envelope on regulatory practices is limited. But we have conscientiously kept abreast of global regulatory initiatives, and adopted the best international standards and practices for regulating and supervising our financial institutions and capital markets, taking into account the specific circumstances of our financial industry.

This issue was present during the first asset purchase program, especially when the pace of weekly purchases reached a peak of about $ billion in the middle of last year. The pace of those purchases at times put pressure on liquidity in the MBS market, leading the Desk to take mitigating actions when possible. 8 In the current circumstances, there would seem to be room for the Federal Reserve to expand its holdings of Treasury securities without creating difficulties for market functioning. The SOMA currently holds about 12 percent of the outstanding stock of Treasury coupon securities – a smaller share than it held before the financial crisis. Moreover, the supply of Treasury securities will remain ample, as the Treasury is expected to issue around $ trillion of securities over the next year. Any purchase program that the FOMC decides upon, whether aimed at Treasury securities or MBS, would be designed to support market functioning as much as possible while still achieving the program’s economic objectives. The deep liquidity of these markets has considerable value to our economy, and we should take whatever steps possible to leave this liquidity intact. The second operational challenge I mentioned comes at the other end of the program – the exit. In particular, it is important to consider whether balance sheet expansion would complicate the eventual exit of the Federal Reserve from its accommodative policy stance. I am confident that our ability to exit will not be compromised by any further expansion of the balance sheet.