Since short-term finance is typically cheaper than long-term finance, profit-maximising intermediaries have an incentive to finance their illiquid long-term loans by potentially footloose short-term debt, relying on their ability to roll that debt over when it matures, or to find similar alternative funding sources. Moreover, the recent episode was also marked by increased reliance on short-term wholesale funding, which proved more prone to flight than traditional retail deposits. Now suppose that the returns on the bank’s loans turn out less than expected or the value of its securities falls. That could be the result of a macroeconomic shock or just reflect a correction to initially over-optimistic expectations. Then the bank’s net worth also falls, reducing the buffer available to cover any further unexpected losses, potentially raising the costs of unsecured debt. Moreover, the collateral available to back secured debt also shrinks. Suppose the bank initially held assets worth fifteen times the value of its equity and assume that it wishes to restore that degree of leverage (in practice, a deterioration in macroeconomic conditions might also lead to lower desired leverage). Then the bank is faced with either reducing its assets or increasing its equity. If it pursues the former strategy, then it would need to reduce its assets by fifteen times the amount by which its capital has fallen. Moreover, by depressing the prices of those assets, such a fire sale also impairs the balance sheets of other banks, amplifying the effect of the shock.

The debit card should be positioned as a cost-effective payment card to make it more affordable for small merchants to accept card payments. The expansion of the POS network would allow for wider acceptance of the debit card to be used more pervasively, to displace the use of cash, thus bringing about cost savings for the country in the long run. To correct the distortions and promote competition in the domestic payment card market, a Payment Card Reform is certainly timely to stem the indiscriminate increases in interchange fees and correct the price signals with the view to widen the POS network especially in non-traditional industries and rural areas. 2. Development and sharing of infrastructure investment  To be successful, e-payment solutions must not only be affordable, their expansion must also be sustainable in the long term. Sustainability entails the ability to leverage on an enlarged network which enables market players to build critical mass and achieve the desired economies of scale. In this regard, the importance of collective industry efforts to develop and share infrastructure cannot be emphasised enough. Infrastructure development is very expensive and the banking industry ought to share the required investments. Infrastructure should not be used as a competitive tool but rather as an enabler that would promote modernisation of the payment system. Besides minimising cost and lowering the entry barrier for new players, collective infrastructure development and sharing of infrastructure costs would allow market players to compete directly on product offerings and quality of services, thus providing better value to consumers.