- term relationship between originator and borrower contributed to a decline in credit quality. further, within several global financial institutions, there were also inappropriate incentives created by the funding of trading desks at risk - free rates and poorly designed compensation structures. there are now prominent calls for increased regulation to better align incentives within institutions. these matters require judgment, not slogans. i firmly believe that regulation of compensation is not appropriate, even though it is in vogue. rather, regulators should consider carefully compensation incentives within a broader assessment of the robustness of risk - management and internalcontrol systems. regulators also need to address misaligned incentives created by regulation itself, such as the current state of capital requirements. it goes without saying that liquidity management across a broad range of financial institutions must be improved. confidence that markets would remain liquid had encouraged the rapid growth of the " originate - to - distribute " credit model. the current illiquidity is hastening its demise. liquidity problems have spread across markets, reflecting both fundamental concerns about the solvency of counterparties and the procyclicality of collateral margins. core money markets have broken down as a result of these three failures, thereby worsening the crisis. had these core markets continued functioning, we would likely be experiencing a credit crunch – where the cost of credit would have been sharply higher – instead of a full - blown credit crisis – where credit is unavailable at any price across a range of core markets. while the provision of extraordinary liquidity by central banks is limiting the damage from the crisis, it has long been apparent that official liquidity, irrespective of size, cannot re - open markets on its own. how to build continuous markets the current situation is unacceptable. the financial system should have a number of core markets – including interbank lending, commercial paper, and repo markets for high - quality securities – that are continuously open even under stress. achieving this will require a combination of the microeconomic measures just described and the pursuit of two strategies. the g - 7 action plan announced last month provides the conventional roadmap. this strategy centres on shoring up systemically important institutions so that they can be more resilient and resume their market - making role. to this end, the g - 7 has made it clear that no systemically important institution will be allowed to fail and that sufficient capital – public and private – will be provided to restore confidence. in recent weeks, g - 7 governments have acted

amando m tetangco, jr : thrift banks – moving forward through responsive, responsible banking speech by mr amando m tetangco, jr, governor of the central bank of the philippines ( bangko sentral ng pilipinas ), at the annual convention of the chamber of thrift banks, makati city, 13 march 2009. * * * ambassador alfredo yao, immediate past president, mr. pascual garcia iii, incoming president of the chamber of thrift banks, distinguished officers and members of the chamber, colleagues from the bsp, members of the media, special guest, ladies and gentlemen, good morning. it is always a pleasure to keynote the chamber ’ s annual convention. this year, you have certainly chosen a very appropriate and constructive theme – “ thrift banks : moving forward through responsive, responsible banking ”. i see being responsive and responsible as two sides of the same coin – one side balances and completes the other. to illustrate, if you were only reactive to changes around you but not mindful of the impact of your actions on those around you, that could lead to discord. if, on the other hand, you are fully aware only of your own obligation, without being sensitive to changes in your surroundings, that could lead to stagnation. you have to be both – responsive and responsible – to be able to push forward. a convention ’ s theme is only as good as the actions that will spring forth from it. so i ask the question, what can the public expect from a responsible and responsive thrift banking industry? the thrift banking industry should be able to make the convention theme come to fruition, despite the distractions of the current crisis. ladies and gentlemen, you have a gem of an opportunity to build upon a stable foundation. through the difficult reforms that together we had put in place over the last few years, our banking system has remained sound, considering the scope and enormity of the current global financial crisis. in particular, • the banking industry ’ s balance sheet grew in 2008, despite stressed global conditions, while both npl and npa ratios remained relatively stable. this is critical when one recalls what it was like in the early months of the asian financial crisis when comparable ratios were rising in large discrete increments. • while profitability has and could be under further pressure, the capital of the banking system as a whole is considerably well above international norms and our own prudential standards