need to focus even more on lending to households and small and medium businesses. these structural changes will bear close watching over the years ahead. bis central bankers ’ speeches some regulatory issues i would now like to turn to the related topic of the future direction of financial regulation. this is obviously a very broad topic, but there are three issues that i would like to touch on. these are : the importance of system - wide supervision ; the regulation of innovation in the financial system ; and the interconnections between financial institutions. first, the importance of supervision. one of the clearest lessons from financial history is that the financial sector has an uncanny ability of finding ways of connecting savers with borrowers. when obstacles are put in the way, detours are often found. new forms of financing pop up. new institutions develop. new products come into play. we saw numerous examples of this in australia in earlier decades, and there are many overseas examples as well, some of which are quite recent. this intrinsic flexibility of finance is one reason why the international regulatory community is spending a lot of time thinking about so - called “ shadow banking ”. there is a legitimate concern that current efforts to tighten regulation will push activities off banks ’ balance sheets, in time creating new risks to the global financial system. while tighter rules were clearly needed in some areas, we need to remain aware of the limitations of rules alone. looking back over the global experience of recent years, it seems that in some jurisdictions rules have been viewed as a substitute for supervision. this has been a mistake. the preservation of financial stability cannot be achieved by rules alone. it requires active and competent supervision. importantly, a good supervisor needs a whole - of - system focus. the supervisor needs to think about the consequences of institutions following similar strategies. it needs to examine closely the interconnections between financial institutions, including those outside the formally regulated sector. it needs to examine developments in aggregate credit growth, construction activity and asset prices, and how these aggregates are distributed across the country. and it needs an understanding of how the competitive dynamics in the system are changing. and then having thought about these issues, the supervisor must be willing, and able, to act and constrain activities that pose unacceptable risks to the financial system. judgement, not rules, is the key here. on this score, australia has been well served by apra ’ s approach to supervision, which has had an industry - wide focus. apra has been supported

muhammad bin ibrahim : “ state of the industry address ” remarks by mr muhammad bin ibrahim, governor of the central bank of malaysia ( bank negara malaysia ), at the asian strategy & amp ; leadership institute ’ s ( asli ) 21st malaysian banking summit, kula lumpur, 25 may 2017. * * * thank you for the opportunity to speak again at the asli malaysian banking summit. around this time last year, i recall delivering the keynote address at this summit after assuming the office of the governor. a year has passed, and it was indeed an eventful year. in the past year, we witnessed major forces that shaped the world. some improbable, others familiar. some transformative, others polarising. some deep - seated, others fleeting. in short, it has been a year of contrasts. in more ways than one, our perception of reality is also changing dramatically. the human brain can now communicate directly with computers, from powering prosthetic limbs to flying drones. months ago, both uber and airbus unveiled separate plans for flying cars. additionally, just earlier this week, artificial intelligence surpassed the world ’ s best player in go, believed to be the most complex strategy game, with more possibilities than atoms in the visible universe. on many levels, these developments contrast starkly with conventional wisdom and the traditional state of play in respective industries. yet, they are also driving thought leadership and genuine innovation. this theme of contrasts will underpin my observations today on the economy and the banking industry. a world of contrasts : synchronous recovery amid uneven risk profiles since the global financial crisis almost nine years ago, the pursuit of a sustained global economic expansion has eluded policymakers. global growth has been slow, fraught with risks and shrouded by uncertainties. there have been several false starts, with uneven and sometimes divergent growth momentum among regions. in fact, 2016 marked the slowest global gdp growth recorded since the crisis. positive developments have, however, recently emerged. a pick - up in industrial activity and trade, along with the increase in commodity prices, points to a quickening in growth momentum. significantly, this growth upturn is characterised by a synchronised expansion in both the advanced and emerging countries. this has given policy makers some cautious optimism for a sustained recovery of global growth and international trade. in particular, the improvement in advanced economies is encouraging as it is led by recovery in investment activity. emerging economies are benefiting from