As global liquidity conditions are normalised – following the unprecedented easing of interest rates by major central banks – financial markets could experience bouts of volatility as a range of asset classes are repriced and this could impact negatively on various interest-sensitive industries. 5. In addition, the reform of the global financial system has to be carefully thought through, calibrated and sequenced. It is important that regulatory reforms do not become politicised, with a rush to adopt simple rules that seem to solve the problems. Specific measures, each of which is sensible, may collectively create unintended outcomes and stymie the nascent economic recovery. In this regard, the Basel Committee’s Quantitative Impact Studies will provide an important basis for us to take a more holistic view of the required changes. 6. So far, most of the discussions have been framed around the theme of “how do we prevent a similar crisis from happening again.” Clearly, we must look back and learn from the crisis. But we must not fight the last war. We must also look forward. In the years ahead, significant restructuring of the global economy is necessary. Hence, I believe a more fundamental question to frame the discussion is: “Given the economic changes and challenges ahead, how do we make the global financial system more resilient and at the same time supports economic restructuring and sustainable global growth?” 7. It is therefore critical to get the nexus between the financial system and the real economy right.

We need a third pillar of partnership, where authorities and financial institutions each take on specific responsibilities to develop a shared ownership of supervisory outcomes. Indeed, the design of regulation and the supervisory approach taken should allow for financial institutions to take on responsibility in contributing towards desired supervisory outcomes where appropriate. Let me highlight two of these areas, namely the industry’s role in improving corporate governance and in capability building. Corporate governance 20. One lesson from the recent crisis is that good corporate governance matters. The failure by Boards to exercise effective risk management oversight had damaging consequences for many institutions. Boards play a vital role in safeguarding the safety and soundness of their institutions by setting the risk appetite, remuneration policies and strategic direction, amongst others. For directors to discharge their responsibilities, they have to have the requisite knowledge, skills and experience. 21. MAS will place increasing emphasis on the quality of the board of directors of financial institutions. Among the proposals to enhance our Corporate Governance Framework for locally incorporated banks and significant life insurers is the requirement for financial institutions to assess the current skills of their Boards on an ongoing basis, and to establish a continuing development programme for all their directors. Given the important role that the banking industry plays in our economy, MAS is also considering developing a mandatory training programme for bank directors. 22. But let me add that rules, and mechanical compliance with rules, can only go so far in encouraging good corporate governance in organisations.