Measures were also taken to reform the operations relating to the issuance of government securities, introduce a new investment policy framework for the EPF, strengthen internal audit and introduce the code of conduct for employees and the members of the Monetary Board. The procurement process for several forensic audits is underway, and forensic audits are to be conducted by entities with global practice. In a challenging global and domestic environment, the Central Bank is steadily improving its policy frameworks to mitigate possible risks and thereby achieve its broad objectives of economic and price stability and financial system stability. Our actions would be effective and yield desired outcomes only if certain conditions are met, especially the commitment of the government to macroeconomic stability. Given the prevailing low growth trajectory, growth promoting policies and structural reforms are much needed priorities for the government. This must, however, be done without disrupting the fiscal consolidation process. For this to happen, the enabling environment must be 10  created for the private sector to play a more active role. We need consistent and predictable policies from the government and a more dynamic and entrepreneurial mindset from businesses. Government’s initiatives aimed at improving the economic and social infrastructure of the country, enhancing productivity, up- scaling skill levels of the labour force as well as expanding domestic production capacity are vital elements to support an accelerated and sustainable level of economic growth, while maintaining a continued low inflation environment.

If losses have to be shared on a large scale this can put the core of the financial system in peril. Corporate bonds and securitised assets can have similar risks, especially if they are effectively held in the banking system. Debt instruments generally can be destabilising if they cannot easily be restructured when losses occur. Equity provides the most efficient form of risk sharing, suggesting perhaps that this area should be a priority for CMU. The nature of investors also matters in ensuring that an increase in cross border market-based financing in the EU does not increase financial stability risks. In general, sources of market-based financing are more likely to be resilient if the investor base is diverse, not excessively reliant on leverage and “sticky”. It is abundantly clear from all of the above that achieving the necessary step change in market-based financing in the EU means a marathon not a sprint. Although it shares its nomenclature with Banking Union, Capital Markets Union is a very different animal. The former is essentially designed to improve stability of and between the euro members through institutional change and moving major financial stability responsibilities to sit at the euro level alongside monetary stability. It was possible to make these institutional changes relatively quickly, though their implementation will take longer. Capital Markets Union, in contrast, aims to deepen and widen the single market, though it needs to have regard to financial stability. It does not require institutional change.