The latter had coincided with the start of the most-severe financial crisis since the Great Depression. Since then, the regulatory response and reform agenda intensified as authorities struggled to bolster the resilience of financial systems. Ten years on, banks around the globe have raised capital and strengthened their balance sheets. On their part, supranational authorities have gone to great lengths to enhance regulation and be better prepared for the next crisis. Apart from regulatory challenges, the system is still grappling with additional risks stemming from the macro-financial and geopolitical spheres. Notwithstanding, in Malta, bottom lines remained healthy as banks and other financial institutions managed to record healthier profits in relation to their European peers. By mid-2018, the return on equity and assets of the core domestic banks stood at 7.6% and 0.6%, respectively as against the 6.2% and 0.4% reported by small European banks. But, just like them, domestic financial institutions had to weather headwinds from geopolitical uncertainties which have become more prominent in recent months - most notably Brexit, concerns on Italy’s economic fundamentals and their implications for the euro, emerging market contagion, and the rise in trade wars between economic superpowers which many fear will lead to widespread protectionism. This is further compounded by the negative effects of a prolonged low interest rate environment which is increasingly exerting pressures on profitability, particularly to the more traditional business models of our domestic institutions. On balance, the Central Bank of Malta remains confident that risks to the domestic financial system are contained.

This balanced approach seeks to optimize synergies between monetary policy, foreign exchange intervention, and capital account policy. Allow me to elaborate. Our monetary policy, under the current inflation targeting framework, can take care of exchange rate as long as there is no conflict with inflation. And, foreign exchange market intervention is conducted only to smooth excessive volatility in the market. As for the capital account policy, I firmly believe that key is the right pacing and sequencing of capital account liberalization, with a view to ensuring a more balanced structure of capital flows into and out of Thailand. On the capital inflow side, we are still maintaining the URR or unremunerated reserve requirement for the time being. This capital control measure has proven a useful tool for reducing the chance of prolonged financial misalignment with economic fundamentals, especially on occasions when most market participants are offside in the same direction. As for the outflow side, we have further liberalized our capital account during the last two months. These measures included the relaxation of FX holdings by juristic persons and individuals. In fact, at the beginning of this year, we also expanded the limits of Thai direct investment and portfolio investment abroad. Even though we all agree that financial openness is needed for long-term economic efficiency, going forward, the appropriate degree of opening or pacing through time will remain an issue for controversial debate. Ladies and Gentlemen, The third part of my talk today focuses on “international rules of the game”.