risk that arises naturally in banking, where maturity mismatch is the nature of the business. unsecured money markets exert a useful disciplinary effect on banks. money markets also are the starting point for the redistribution of the liquidity provided by central banks and hence the starting point for the transmission of monetary policy. for example, the eonia rate – the rate of unsecured overnight lending between some of the largest euro area banks – is an important first link in the chain of monetary policy transmission. ever since the financial turmoil started in august 2007 – more than five years ago – and then became a severe crisis with the bankruptcy of lehman brothers one year later in i wish to thank fiona van echelpoel, benjamin hanssens, florian heider, and marie hoerova, for their contributions to this speech. i remain solely responsible for the opinions contained herein. cpss report : “ strengthening repo clearing and settlement arrangements ”, september 2010. bis central bankers ’ speeches september 2008, money markets have not been operating smoothly. the outbreak of the financial crisis has been well documented, but it is worthwhile recalling the extent of the shocks, which are still being felt today. 3 within a few days after the demise of lehman brothers on 15 september 2008, the euribor - ois spread, which had been zero a little over 12 months before, rose to a staggering 186 basis points ( in the united states the spread rose to 365 basis points ). in addition, cash - rich banks were apparently no longer lending to cash - poor banks. the flow of liquidity in the financial system came to a sudden stop. prior to the bankruptcy of lehman brothers, banks hardly ever deposited funds at the ecb ( where they earn the deposit facility rate, which at the time was 1 % less than the policy rate ). after the lehman bankruptcy, banks suddenly deposited an aggregate amount of around €200 billion. deposits increased since the ecb responded to the tensions in the market by accommodating the increase in banks ’ demand for liquidity. 4 the extent of banks ’ use of the ecb ’ s deposit facility is a useful indicator of the impairment of the flow of liquidity throughout the banking system, especially when the group of depositing banks is different from the group of borrowing banks. 5 a further troubling indication of the malfunctioning of money markets right after the lehman bankruptcy came from cross - border transactions. before the bankruptcy, cross - border

reflect their systemic importance in our economy and financial system. there is no global capital standard for the insurance industry. this is a lacuna that needs to be plugged. but the international association of insurance supervisors ( “ iais ” ) has taken the lead to formulate standards for a risk - based solvency regime for insurers. the eu has built on this to develop detailed capital standards known as solvency ii. many jurisdictions are reviewing their rules with the intent to align with iais standards. bis central bankers ’ speeches singapore was among the first jurisdictions in asia to introduce a risk - based capital ( “ rbc ” ) framework for insurers, in 2005. in 2012, mas embarked on a review to enhance the framework, known as “ rbc 2 ”, to take into account the new iais standards and best practices, including relevant aspects of solvency ii. mas will be conducting a quantitative study to assess the impact on the insurance industry of the proposals under rbc 2. there are no global capital standards for capital markets services providers. the international organisation of securities commission ( “ iosco ” ) has, however, set out principles for the solvency of securities market intermediaries. based on these principles, mas has implemented a risk - based capital framework for capital markets services licensees. strengthening liquidity buffers the second important area of reform is setting – for the first time – international standards for bank liquidity. banks are in the business of transforming short - term liabilities ( mainly deposits ) into long - term assets ( mainly loans ). this fundamental mis - match in maturity opens banks to the risk that they may not be able to finance short - term liabilities as they fall due. even solvent banks with lots of capital can fail if liquidity risks are not well - managed. the new liquidity coverage ratio ( “ lcr ” ) sets the global minimum standard for bank liquidity. essentially, the lcr framework requires banks to have an adequate stock of high quality liquid assets that can be converted into cash to survive a 30 - day period of stress. in singapore we have had liquidity rules for a long time. our risk - based minimum liquid assets framework requires every bank to hold a minimum percentage of its qualifying liabilities in liquid assets. we are now looking to adopt the basel iii lcr rules, with some enhancements to suit domestic conditions. • although basel iii applies the lcr framework only to internationally active banks, we propose to extend