Another conclusion is that interest-rate policy is not enough to achieve financial stability. Other instruments like supervision and regulation, including appropriate bank resolution regimes, should be the first choice for financial stability. In many countries, the responsibility for these instruments rests on authorities other than the central bank. Generally, to the extent financial instability depends on specific distortions, good regulation should aim to attack these distortions as close to the source as possible. To counter the observed procyclicality of existing regulation, macro-prudential regulation that is contingent on the business cycle and financial indicators may need to be introduced to induce better financial stability. Possible macro-prudential regulation includes variable capital, margin, and equity/loan requirements. As expressed by Bean (2009), “the best approach is likely to involve a portfolio of instruments”. 14 More generally, what is the relation between financial stability and monetary policy? Financial stability is an important objective of economic policy. A possible definition of financial stability is a situation when the financial system can fulfil its main functions (of submitting payments, channelling saving into investment and providing risk sharing) without disturbances that have  12  Kohn (2008), after extensive discussion, concludes that there is insufficient evidence that low interest rates would have contributed much to the house-price boom and that higher interest rates would have had much dampening effect on it. 13  The relationship for the Euro area countries is less weak, but for reasons explained by Bernanke (2010) it is potentially overstated.

These include pre-emptive staging of loans to recognise higher credit risks among specific borrowers seeking repayment assistance, more conservative provisioning models, and increased application of management overlays to bolster model-determined provisions. 3. Finally, the ready presence of effective institutional arrangements has also helped us be prepared for managing an influx of distressed borrowers. Drawing on our experience from the Asian Financial Crisis, Malaysia has in place debt restructuring mechanisms for individuals and businesses alike. These include out-of-court platforms, namely the Corporate Debt Restructuring Committee (CDRC) for large corporates, Small Debt Resolution Scheme (SDRS) for SMEs, and Credit Counselling and Debt Management Agency (AKPK) for individuals. AKPK, in particular, has become a staple name in Malaysia due to its vast publicity campaign. Although we have not observed any spikes in the number of cases admitted into CDRC, SDRS and AKPK, in part due to banks’ enhanced capacity to carry out debt restructuring, we resolved not to leave anything to chance. Accordingly, the capacity of these out-of-court platforms was ramped up at the onset of crisis in anticipation of a potential deluge of distressed borrowers. To further enhance operational efficiency, the 2/3  BIS central bankers' speeches  SDRS was absorbed into AKPK, making AKPK now the one-stop platform for both individuals and SMEs to restructure debt and obtain financial advice.