with the process of financial deregulation that has taken place in the asian countries over the last 10 years or so is that it was driven partly by doctrine. this doctrinal imperative reflected two separate forces, which came together more or less by accident. the first of these forces was the dominance in academic circles of the “ efficient markets paradigm ”. this is a powerful analytical device, which has taken thinking in economics down very useful directions. but it, like all paradigms, is an imperfect representation of the real world. perhaps more seriously, in the course of academic debate, it became quasi - religious, with beliefs and facts becoming confounded. this made it hard to leaven the efficient markets paradigm with some real - world facts – principally, that markets are imperfect. the second force was a simple commercial imperative on the part of foreign financial institutions to gain access to new markets and compete in the most vigorous way. this commercial imperative was successfully transplanted into the political processes, so we saw, for example, the oecd insisting on capital market deregulation as a condition of korea ’ s membership of the organisation. these forces combined to form powerful rhetorical pressures, to deregulate as fully as possible, with special virtue being attached to those who opened their markets at the most breakneck speed. one of the notable manifestations of this was the bangkok international banking facility, whereby small thai businesses were presented with a frictionless conduit to international financial markets, where they could borrow at attractively low interest rates, in foreign currency. in australia, we know, from our small taste of the swiss loans in the 1980s, how dangerous it is to have relatively unsophisticated borrowers given the opportunity and incentives to take on sophisticated products involving foreign exchange risk. but in australia this was relatively modest in macro - economic terms. in thailand, the inflow through the bangkok international banking facility was not far short of 10 % of gdp. with this change of attitude, it should be easier to insert some common sense into the process of deregulation, and have the courage to say “ no ” ( or “ not yet ” ) to some aspects of deregulation which seem to make countries more vulnerable. so it may be quite sensible, from this viewpoint, to put various restrictions on short - term capital inflows, and on foreign - currency borrowing. this is compatible with free - market principles, because these are properly seen as transition measures, to be modified and

our efforts to support the economy have gone well beyond conventional monetary policy, however. i have already alluded to the federal reserve ’ s close cooperation with the treasury, the federal deposit insurance corporation ( fdic ), and other domestic and foreign authorities in a concerted and ultimately successful effort to stabilize the global banking system, which verged on collapse following the extraordinary events of september and october 2008. we subsequently took strong measures, independently or in conjunction with other agencies, to help normalize key financial institutions and credit markets disrupted by the crisis. among these were the money market mutual fund industry, in which large numbers of american households, businesses, and municipalities make short - term investments ; and the commercial paper market, which many firms tap to finance their day - today operations. we also established and subsequently expanded special arrangements with other central banks to provide dollars to global funding markets, as we found that disruptions in dollar - based markets abroad were spilling over to our own markets. more recently, we have played an important part in helping to re - start the markets for assetbacked securities that finance auto loans, credit card loans, small business loans, student loans, loans to finance commercial real estate, and other types of credit. by working to revive these markets, which allow banks to tap the broader securities markets to finance their lending, we have helped banks make room on their balance sheets for new credit to households and businesses. in addition, we have supported the overall functioning of private credit markets and helped to lower interest rates on bonds, mortgages, and other loans by purchasing unprecedented volumes of mortgage - related securities and treasury debt. in all of these efforts, our objective has not been to support specific financial institutions or markets for their own sake. rather, recognizing that a healthy economy requires wellfunctioning financial markets, we have moved always with the single aim of promoting economic recovery and economic opportunity. in that respect, our means and goals have been fully consistent with the traditional functions of a central bank and with the mandate given to the federal reserve by the congress to promote price stability and maximum employment. in addition to easing monetary policy and acting to stabilize financial markets, we have worked in our role as a bank supervisor to encourage bank lending. in november 2008 we joined with other banking regulators to urge banks to continue lending to creditworthy borrowers – to the benefit of both the economy and the banks – and we have recently provided guidelines to banks for working constructively with troubled commercial real estate loans. 4 this