The macroeconomic reasons for the occurrence of the current crisis could further be divided into two groups: a) problems related to unbalances in the international claims and b) problems caused by the maintenance of low real interest rates over a longer period. The first group of macroeconomic reasons includes unbalances in the current accounts of balance of payments among economies, which, in turn, brought about unbalances between the capital accounts. In that process of creating unbalances, especially in the decade before the crisis, the capital spilled over from the developing countries to the developed economies, particularly to the US. The second group of macroeconomic reasons resulted from the excessively long maintenance of low real interest rates. The historically low real short-term interest rates actually reflected adjustable anti-deflation monetary policy. The low long-term interest rates, on the other hand, largely reflected the high savings rate in the capital-exporting countries, particularly in the Asian developing countries and several oilexporting countries. These countries, seeking for sound financial instruments to place their savings, increased the demand for long-term government securities issued by the governments of the developed countries, thus contributing towards reduction of the long-term interest rates. The low interest rates had multiple effects, including the acceleration of the credit growth in a number of industrial countries, swift growth in the prices of properties and share; and generally, taking high risks during the contest for generating higher earnings. The financial crisis, however, demonstrated that there are serious problems in the area of microeconomics, as well.

Singapore’s regulatory regime already meets or exceeds international norms, and this has enabled us to weather the financial crisis relatively well. Following the crisis, international regulatory standards are being raised. We are well-placed to meet them. Let me start with banking. MAS announced last month we will require Singaporeincorporated banks to meet Basel III capital requirements earlier than the Basel Committee’s schedule, and at a higher standard. Market reaction to this announcement has been positive because Singapore-incorporated banks are well-capitalised and in a strong position to meet MAS’ revised requirements. These requirements will help keep our banking system strong and safeguard our financial stability. Likewise for liquidity. Singapore was one of earliest jurisdictions to require banks to maintain minimum liquidity levels. Over the years, this has evolved to a risk-based liquidity risk supervision framework. Singapore banks are therefore well positioned to meet the new Basel liquidity ratios. Effective regulation is not just about setting high standards. It is also about creating market conditions that enable financial institutions to meet the standards. Take for instance the higher liquidity requirements under Basel III. MAS has taken steps to increase the availability of liquid assets in the market and collaborate with other central banks to expand eligible collateral in the MAS Standing Facility. Let me elaborate. BIS central bankers’ speeches  3  We started issuing one-month MAS Bills in April this year. This has added about $ billion of high quality liquid assets for financial institutions. We have seen good interest in the Bills.