The first is that the recovery is being propelled by a virtuous circle between rising consumption, employment growth and labour income. As low financing costs and, initially, low oil prices have 2/6  BIS central bankers' speeches  fed through into household spending, the labour market has strengthened and real disposable incomes have accelerated. Around 50% of the rise in real labour income since mid-2014 can be explained by more people in work, with most of the rest explained by lower inflation boosting real wages. This has in turn fed further consumption growth as households have kept saving rates stable, leading to higher employment, income and spending. And as aggregate demand has strengthened, investment has also begun a cyclical recovery, which we expect to reinforce growth dynamics going forward. However, it still remains 10% below its pre-crisis peak and well below its historical trend. Importantly, domestic demand has firmed against the backdrop of improved private sector balance sheets, which is the second key feature of the recovery. For virtually the first time since the start of monetary union, spending has been rising while indebtedness has been going down. Especially in formerly stressed countries, debt ratios for both firms and households have fallen substantially. And pertinent for the strength of the recovery, the drivers of this deleveraging have been changing. Bear in mind that there are two types of deleveraging: “macroeconomic” deleveraging – reducing debt ratios through nominal growth – and “balance sheet” deleveraging: paying off or writing down debt.

MAS is involved in discussions at the Financial Stability Board, the Basel Committee on Banking Supervision and other fora to consider proposals to strengthen the regulatory framework. Let me highlight two key areas of focus: regulatory capital framework and liquidity risk management standards. The crisis occurred on the back of aggressive risk taking and leveraging. Risks had been under-estimated and in many cases, financial institutions were over-reliant on external credit ratings and on quantitative models. Risks were built up both on and off the balance sheets of banks. When these started to materialise, the de-leveraging effects and the steep fall in asset prices resulted in liquidity seizures in asset and funding markets. This caused major losses and writedowns of bank capital. In many cases, costly government intervention was needed to keep the financial institutions from failing. To improve the resilience of banks, global regulators have agreed to raise the levels and quality of bank capital. Additional capital for trading book and for securitisation risks will be needed. There are on-going discussions on establishing a framework for countercyclical capital buffers and raising the quality, consistency and transparency of the Tier 1 Capital base. Other supplementary tools to contain the riskiness of banks, such as a leverage ratio are also being developed. To address liquidity concerns, regulators are considering the introduction of a minimum global liquidity standard that includes a stressed liquidity coverage requirement underpinned by a longer term structural liquidity ratio.