rundheersing bheenick : thinking globally, banking locally, and branching out … address by professor rundheersing bheenick, governor of the bank of mauritius, at the official opening of grand bay branch of the hsbc, grand bay, 18 december 2007. * * * i ’ m delighted to be here, opening a new branch, of a famous bank. the history of the hsbc group, in mauritius, can be traced back to 1859, when the chartered mercantile bank of india, london and china, established a branch in port louis. one well - known project, that this bank assisted in financing, was the construction of the port louis to curepipe section of the railway, in 1864. those were the days! and how we struggle now to get back on to the fast track! opening a new branch is always a pleasure ; one only to be surpassed, for a central banker, by opening a new bank! this year we have done both. i come to open this branch, having only recently opened a newly - licensed commercial bank in the country, and having just laid the foundation stone of a new branch of the bank of mauritius in rodrigues. it is one of those habits i don ’ t want to break. i hope this trend, reinforced today, in our 40th anniversary year, will be continued in 2008, the 40th anniversary year of the independence of mauritius, bringing new life and strength to the banking sector. about this time last year, contemplating the prospect of becoming governor of a central bank, i speculated that my life might be even more exciting than that of james bond. you will recall that 007 had a singular license to kill. we central bankers have a triple license, and it seems none of then come with the risks bond was running from fast cars, faster guns, and still faster women. the dream of a central banker is first to have that wonderful midas touch, a golden gift, at this time of the year : • the license to print money! and then he gets that really expansive gift : • the license to open new banks, and finally the third great gift, that salutary power : • the license to close them again! but you may be pleased to know, that today, as your invited guest, on this opening day of a new branch, i have brought none of these licenses with me! i must say i am glad to be here as a guest of an expanding bank, which has such a well

to a more capital - market based financial system is expected to enhance financial stability. one prominent reason for this effect is that the efficiency, depth and liquidity of markets can be assumed to improve with their growth. in addition, the diversity in types and sizes of institutional investors should increase. finally, it is likely that institutional investors will process information available to the general public more efficiently than private investors. at this point, however, let me utter two words of warning. they are necessary as the growing importance of institutionalised forms of saving does not necessarily lead to increased stability. firstly, the rising number of institutional investors could potentially be accompanied by a greater risk of herding behaviour which, in turn, might increase volatility in financial markets. this is just one example why financial stability issues are at the top of central banks ’ agendas. the second word of warning also applies to financial stability issues. the transition from pay - as - yougo schemes to funded pension schemes certainly supports fiscal sustainability – but introduces a new reason for concern : a decline in the financial strength of suppliers. this risk became apparent in 200002 when – due to falling equity prices – pension funds and also some life insurance companies became significantly underfunded. the episode prompted policy changes in areas such as asset liability management and financial accounting. however, the resultant need to match long - term liabilities with suitable assets might now trigger shifts in the asset allocation of pension funds and life insurers. two questions evolve out of that : will there be a shift from equity to bond markets? indeed, such a shift – or other investors ’ ( eg hedge funds ) anticipation of it – is commonly cited as a “ special factor ” explaining what appear to be excessively low levels of global longterm interest rates. but even if such a shift is plausible in countries where equity allocation in the investment portfolios predominates ( for example, in the us, the uk or canada ) empirical evidence of such a closing of the duration gap is neither clear nor uniform across countries. 5 is there a scarcity of financial instruments that enable pension funds and life insurers to manage duration, inflation and longevity risks? this is the reasoning underlying the occasional call for the government to act as a catalyst for private issuance of inflation and longevity hedges. i do not object to authorities issuing ultra - long fixed and inflation - indexed bonds at market prices. but governments should refrain from issuing longevity bonds. not only do governments lack a suitable hedge