First, I will discuss briefly what we learned at tabletop exercise with a number of Federal Reserve Bank presidents concerning the potential use of macroprudential tools in response to sectoral imbalances. I think the tabletop exercise underscores the difficulty of using macroprudential tools in practice in the United States. Second, I will discuss the issue that Adam Posen has raised – whether we should focus on the use of rules that are hardwired into the financial system ex ante or instead favor using macroprudential tools in a more discretionary, ex post basis, once particular problems have been identified. In the tabletop exercise, the five Federal Reserve Bank presidents who are members of the Subcommittee on Financial Stability of the Conference of Presidents discussed the best way to respond to a scenario in which the commercial real estate market was overheating.2 The scenario was much more detailed than that, but the commercial real estate sector was the major problem with respect to financial stability. The stated goal of the exercise was to reduce the risk posed by the commercial real estate boom to financial stability and, by extension, to the Federal Reserve’s ability to achieve its macroeconomic objectives of maximum sustainable employment and price stability. Prudential tools under consideration included:  2  2  See Macroprudential Policy: Case Study from a Tabletop Exercise, Tobias Adrian, Patrick de Foutnouvelle, Emily Yang, and Andrei Zlate, Federal Reserve Bank of New York Staff Report No. 742, September 2015.

Moreover, several challenges such as the advent of ASEAN Economic Community (AEC) in 2015, the implementation of the Basel III accord and the rocky recovery of the western hemisphere, remained ahead of us. In this regard, I view that priority should continue to be on strengthening the role of domestic and regional institutional investors. This group of market participants are important players on both the issuer and investor side. Collective investment or asset management companies can be an important vehicle to channel cross border savings for cross border investment. We know all too well that very few non financial single name issuer can succeed in a foreign market if they are not well known household names. But institutional investors such as insurance, pension funds and asset management firms are likely to be able to better intermediate cross border savings and investment. These institutional investors would be able to provide a two way flow and with a better knowledge of regional conditions and a natural home bias, would also be a stabilizing factor during severe market stress. A stronger and broader regional institutional investor will also provide opportunities for diversification as well as alternative saving vehicle that would serve the changing demographic trends. Throughout Asia, we are seeing increasing demand for more sophisticated wealth management services. As regulators we also need to continue to collectively enhance our infrastructure and further harmonize regulatory regimes to support greater cross border activities. Standardized market conventions help promote cross border issuance in our respective markets.