have nonetheless moved forward in putting in place a risk - based supervisory approach where minimum prudential standards are set, behavior and conduct are monitored but the day - to - day strategic & operational decisions are clearly vested on the banks in the context of their fiduciary responsibilities and their governance mandate as good corporate players. we have earlier shown the committee mr. chairman the capital adequacy position of our universal & commercial banks, setting the bar higher than the basel accord. over and above that, we now have a core of dedicated specialists who are individually assigned to oversee specific institutions and have the technical expertise & training required for this critical function. we are instituting a new reportorial system – the frp – that is fully compliant with international accounting standards. perhaps most critically, we have regular and open discussions with our stakeholders so that issues can be thoroughly ventilated and a common understanding reached. the broad overlying issues all of these developments on the ground eventually mesh with the broad overlying issues. we have strengthened ourselves internally because we recognize that funding markets are irrevocably global where ups and downs necessarily cascade to everyone. the market no longer distinguishes where perturbations emanate ; it only appreciates how the contagion may be transmitted. in this respect, the current problems in the united states are certainly not an isolated “ us issue ”. there is no other stronger proof of this than the fact that various central banks have been working in concert to provide the necessary liquidity to prevent systemic dislocations. moving forward though, information will always remain to be the key ingredient so that appropriate measures can be calibrated for differentiated difficulties. information though is a two - way street : we will continue to oversee covered - institutions based on our risk - based supervisory framework while stakeholders need to remain faithful to the tenets of transparency and disclosure. macro - economic landscape we would like to reiterate that the country ’ s macro fundamentals remain sound and the economy has proven to be resilient. despite a general slowdown worldwide and skyrocketing oil prices, we continue to generate growth. our inflation numbers have indeed moved upwards and we recognize the difficulties that this brings. however, based on present commodity market conditions, we may soon see some relief. our international reserves continue to rise, reaching $ 36. 7 billion as of end - august. this represents 6 months worth of imports and the payments of goods and services, doubling our previous norm

repackage the traditional risks related to mortgage out of the balance sheet of banks while providing newer means to handle the financing of the mortgage. these structured products were made available to a wide spectrum of investors across different jurisdictions allowing for new opportunities in a more diversified portfolio. unfortunately, mr. chairman, when mortgage defaults became prevalent, the same links that diversified risks to a broader web of stakeholders are precisely the very same links through which we find some contagion effect that is now reflected by the present difficulties. the role of information, mr. chairman, in all of these simply cannot be understated. when times are good, there is the overwhelming tendency to ride the bandwagon, oftentimes sacrificing the need to validate all information as prudence dictates. however, when times are bad, it is precisely the dearth of information that drives institutions and the general public towards panic. to see this in better detail, we begin with what is arguably one of the most followed market rate, the effective fed funds rate. soon after the onset of the new millennium, the effective fed funds rate was moving downwards, eventually reaching its lowest levels in the 3rd quarter of 2003. the low interest rate regime was intended to spur lending and indeed one sector that benefited was the mortgage markets. housing prices were experiencing a pronounced appreciation and the low interest rate regime served to further fuel a boom in mortgages. in ages past, banks simply took the tenor mismatch of short - term liabilities funding long - term assets such as mortgages. this business model however exposes the bank to considerable long - term risks. under the basel accord framework – the de facto international best practice for bank supervision – these risks must be mitigated by corresponding capital charges. it is the long - term nature of the mortgage that makes it relatively “ expensive ” to maintain from the standpoint of allocating a fixed amount of bank capital. the process of securitization offers an alternative since us financial institutions could take out much of the traditional mortgage - related risks from their balance sheet. essentially, this is what occurred as housing equity loans ( hels ) were securitized, providing fis both fresh funds and balance sheet leeway to extend new loans, particularly mortgages. the securitized hels became what is referred to as mortgage - backed securities ( mbs ) and, with further structuring, eventually fed into another instrument which is called collateralized debt obligations or cd