Neither is it determined by how dynamic and innovative the financial services sector is. A regulatory framework focused on stringency alone would impose undue costs and constrain innovation without the assurance that it would be effective. A regulatory framework focused on dynamism alone may not offer sufficient protection to investors, depositors and customers, and may experience more disruptive consequences in a crisis. 10. MAS’ approach to rule-making is outcome-focused. This recognises that the design of regulation should take into account market realities so that unnecessary disruption to wellfunctioning markets is minimised. For example, in current proposals for a new liquidity framework for banks, having too narrow a definition of acceptable liquid assets is likely to adversely affect the operations of banks in countries without an active sovereign debt issuance programme. We believe that there is a good case for high quality, widely circulated non-sovereign debt to be included as acceptable liquid assets, without undermining the prudential intent of the new liquidity rules. In this regard, the results of the Quantitative Impact Study conducted by the Basel Committee will have to be studied carefully in finalising the list of eligible liquid assets. 11. Having outcome-focused rule-making also means that where appropriate, MAS may seek to reign in potential risk-spots through more prescriptive rules, even if such rules are not commonly accepted international best practices. A good example would be the macroprudential rules in some Asian countries, including Singapore, to cap loan-to-value ratios for mortgages, which are not common in the US and Europe.

In this regard, Asia’s needs are likely to be different from those in the advanced economies. Economies in rapid transition need responsive banking and capital markets. Bankers need to appreciate the changing needs of the economy, build new capabilities and develop new products and services, to support the needs of companies, large and small, in both mature and new industries. The financial industry needs to build up capabilities to understand the requirements of new industries in the technology and services arena, and to efficiently fund long term infrastructure needs. To sustain Asia’s growth  BIS Review 51/2010  1  trajectory, we need to further develop and deepen national financial systems and regional financial integration. MAS is studying several ideas in these areas, and we look forward to working with our counterparts in the region and with the industry to advance this. 8. Let me now share the measures that MAS is taking to respond to the challenges from the international reform agenda and the evolving new financial landscape. Our measures are based on three key pillars. Sensible rules 9. The first pillar is establishing sensible rules. MAS seeks to establish sound rules of a high standard that allows well-managed risk taking and innovation, and which emphasises the stable and sustainable development of the financial services sector. The effectiveness of a regulatory framework is not determined by whether it is stringent enough to prevent any kind of shortcoming or failure of any firm.