lucas papademos : financial market excesses and corrections – a central banker ’ s perspective speech by mr lucas papademos, vice - president of the european central bank, at the international research forum on monetary policy, jointly organised by the board of governors of the federal reserve system, the center for german and european studies at georgetown university, the centre for financial studies at frankfurt university and the european central bank, frankfurt am main, 26 june 2008. * * * ladies and gentlemen, i. introduction it is a great pleasure for me to address you on the occasion of this fifth conference of the international research forum on monetary policy. the goal of the forum is to foster a transatlantic dialogue, based on rigorous theoretical and empirical research, on issues of relevance to monetary policy in the united states and the euro area, but also from a global perspective. and certainly the topics on the conference programme are of global relevance to monetary policy - makers and concern issues that continue to pose challenges for central banks. the financial market turbulence over the past 10 months has highlighted the global and pressing relevance of several policy issues. and it has posed significant challenges for central banks : challenges for the conduct of monetary policy, the management of liquidity in the money markets and the performance of tasks pertaining to their responsibility to help safeguard financial stability. the ongoing process of risk reappraisal and balance sheet adjustment has led to extensive analysis and discussion of a number of pertinent matters : the underlying causes and ( proximate ) triggers of the market turmoil, the mechanisms responsible for the propagation and amplification of shocks across markets, institutions and borders, the identified weaknesses in the capacity of financial institutions and investors to appropriately assess and adequately manage risks, and, finally, necessary actions of market participants and authorities to address the consequences of the ongoing financial market correction and to strengthen the resilience of the financial system. in my remarks, i will concentrate on three themes : • the first pertains to the underlying causes of the turmoil and, in particular, some key factors and processes that contributed to the emergence and persistence of financial market excesses and asset price bubbles and can also help explain the timing and abruptness of the market correction. • the second concerns the special role of certain asset markets, notably the housing and credit markets, in driving the dynamics of boom - and - bust. • the third focuses on the role of central bank policies and tasks in containing the risk of financial market imbalances and in mitigating their

towards the use of local currencies to support cross - border settlements for trade and direct investments among the three countries. it is an opportunity to mitigate the impact of volatilities in major trading currencies on regional trade and investment activities. we can recall the global financial crisis, where the tightening of global us dollar liquidity was a contributor to the 19 % contraction of total trade and 11. 5 % contraction of total inward fdi into the region. moreover, an enabling environment for the effective use of local currencies will bring about greater cost efficiency and stability for businesses and increase demand for local currency financial products. that will, in turn, be the impetus to strengthen regional financial markets ’ development. 1 / 2 bis central bankers'speeches i am pleased that the event today is made possible by all three central banks, mutually agreeing to grant regulatory flexibilities to the appointed banks under these frameworks, enabling them to provide a wider range of financial services under their respective jurisdictions. taking this opportunity, i wish to introduce the appointed banks in malaysia for these frameworks, namely, maybank berhad, cimb berhad, rhb berhad, public bank berhad, hong leong bank berhad, bangkok bank berhad, united overseas bank ( uob ) berhad and bank of tokyo - mitsubishi ( btmu ) berhad. the implementation of these frameworks will complement our existing close partnership and cooperation as neighbors, with common objectives and shared aspirations. on this note, i look forward to witness the growth in the use indonesian rupiah, thai baht and malaysian ringgit for cross - border settlement of trade between indonesia and malaysia, and thailand and malaysia, respectively. 2 / 2 bis central bankers'speeches