however, stricter financial market regulation. more has been initiated in this area than is generally acknowledged. at the beginning of this year, the basel iii capital rules became effective in europe, which will gradually improve the quantity and quality of banks ’ capital. moreover, rating agencies have been placed under supervision, inappropriate compensation systems have been corrected, computer - driven high - frequency trading subjected to stricter regulation and trade in highly speculative financial derivatives has been rendered more transparent and thus safer. in order to break the disastrous nexus of banks and governments, the regulatory treatment of government bonds will, however, also have to be changed. currently, banks can invest unlimited amounts in euro - area government bonds. under the current capital rules, a zero risk weight applies to these assets, which means that these government bonds can be fully funded with borrowed money, in other words, they do not require any capital backing. this constitutes preferential treatment, and has been a factor in banks in several peripheral euro - area states, in particular, raising their exposure to domestic sovereign bonds during the crisis ; they have thereby tied their fate to that of their national government. in my opinion, credit ceilings and risk - based capital backing would be a sensible way of breaking the nexus – that would basically mean applying similar rules to those for bank loans to private - sector debtors. such rules would also promote bank lending to enterprises. support for this proposal is growing, its logic is compelling, but implementation is probably not on the cards for 2014, and i fear that berlin brandenburg airport may be up and running first. in the longer term, however, such regulations are, in my opinion, an indispensable prerequisite for a stable monetary union and a healthy financial system. 7. conclusion ladies and gentlemen considerable progress has already been made towards resolving the crisis, but there is still a long way to go. the aim must be a more stable financial system and a more crisis - resistant monetary union. important strategic decisions will again have to be taken in 2014, and it remains to be hoped that far - sighted agreements will be reached. financial market regulation remains on the agenda, as do further structural reforms in the peripheral countries. in germany, politicians should be careful not to jeopardise the achievements of the reform policies. the good state of the german economy can be attributed, in good part, to the structural reforms of the past decade. institutional reform of the monetary union must continue apace, with the objective of establishing stable long

. we recognize that the work agenda is complex and far reaching. key reform initiatives that we have identified include basel 3, corporate governance, consumer protection and financial education, financial market infrastructure bis central bankers ’ speeches and crisis preparedness. these initiatives are on our radar screen today in the context of unifying the prudential architecture of financial stability. none of these is trivial, each one of these requires a keen eye for details and a broader appreciation of how each interconnects with another, and each is essential in the pro - active management of any underlying pressure points that may be brewing. let me also say that we do not underestimate how weaknesses in the west will leave their imprints upon asia, upon us. although better off than other jurisdictions, economies in our region are also experiencing an economic slowdown. coupled with the deleveraging in europe, asia will feel some of the repercussions, either from re - leveraging, capital inflows and / or stronger local currencies. these are not insignificant macroeconomic policy issues and they certainly will be formidable macro - prudential policy concerns. for us there is that added issue of domestic liquidity that is building up and looking for suitable outlets. some say it ’ s a positive problem that is preferable to the case of liquidity drying up. that may be true, but to central bankers, it is still a concern, positive or otherwise. in retrospect, we believe that the philippine banking system is in a position of strength. such strength has been achieved through the reforms that we have invested in the past and whose benefits have come to fruition. moving forward, we expect to further evolve with the needs of the public at large as well as the institutions that we oversee. ladies and gentlemen, let me reiterate – there is a role for the market in this framework. bsp does not expect to do the work alone. we stand not only as your banking regulator or monetary policy authority. we are your partner, and as in any partnership, we expect the different stakeholders to bear their proportionate load. whether it is in managing financial risks or in exemplifying acceptable conduct in market operations, the market has a definitive role. stability is easier to achieve if we consider the bigger picture and not be shortsighted by our own bottom lines. capital market development is certainly a shared responsibility because it is a collective gain. and providing for an inclusive financial market, with appropriate support