anselmo l s teng : the international financial crisis – impact on asia and lessons for macao speech by mr anselmo l s teng, chairman of the monetary authority of macao, at the international symposium on the occasion of the 35th anniversary of the bank of mozambique, maputo, 17 may 2010. * * * dear governor gove, dear delegates, ladies and gentlemen, introduction 1 ) i feel very honoured to have been invited by governor ernesto gove to take part in the celebrating activities to mark the 35th anniversary of the banco de mocambique and to talk about this big topic “ the international financial crisis – impact on asia and lessons for macao ”. it has been almost three years since i led the delegation of the macao financial sector for the visit to maputo in july 2007. i am very pleased to be in maputo again. first of all, may i wish banco de mocambique happy birthday and many happy returns. 2 ) at this moment, it is generally believed that the financial tsunami is behind us. there may be hiccups, but a double dip appears not quite likely, according to recent performance of major financial markets around the world. it however appears that the recent volatility provoked by sovereign risks will be around for some time. 3 ) for this presentation, i am going to talk about the economy of macao before and after the crisis, then i will touch on asia and the economy of china post crisis before moving back to introduce the way forward for macao. the second half of this presentation will be focused on the lessons macao and the global village have learned from the crisis, which will be followed by the epilogue. the economy of macao – before and after the crisis 4 ) coming back to macao, we all know that it is a tiny but open economy. it has been known for its tourism services business and cultural heritage. under the auspices of china and a series of policy measures, the economy has taken leaps and bounds for about 10 years in a row since the return of sovereignty to china. i do not want to throw out a series of statistics, but i can say that gdp has been growing at an average of 12. 4 % per annum over the past 10 years and per capita gdp jumped from usd14, 000 in 1999 to usd39, 000 in 2009. on the other hand, the heritage foundation of the u. s. a. has been awarding high scores on many

banks and thrifts have become so similar, it makes no sense to continue the separate funds. separate funds reflect the past, but neither the present nor the future. equally important, the insurance products provided to the two sets of institutions are identical, and thus the premiums should be identical as well. under current arrangements, the premiums could differ significantly if one of the funds fell below the designated reserve ratio of 1. 25 percent of insured deposits and the other fund did not. merging the funds would also diversify their risks and reduce administrative expenses. 2. statutory restrictions on premiums current law requires the fdic to impose higher premiums on riskier banks and thrifts but restricts its ability to impose any premium on well - capitalized and highly - rated institutions whenever the corresponding fund ’ s reserves exceed 1. 25 percent of insured deposits. the board strongly endorses the fdic recommendations that would ( 1 ) require that a premium be imposed on every insured depository institution, no matter how well capitalized and well rated it may be or how high the fund ’ s reserves, and ( 2 ) eliminate the statutory restrictions on risk - based pricing. the current statutory requirement that free deposit insurance be provided to well - capitalized and well - rated banks when fdic reserves exceed a predetermined ratio maximizes the subsidy provided to these institutions and is inconsistent with efforts to avoid inducing moral hazard. put differently, the current rule requires the government to give away its valuable guarantee when fund reserves meet some ceiling level. this free guarantee is of value to banks and thrifts even when they themselves are in sound financial condition and when macroeconomic times are good. at the end of last year, 92 percent of banks and thrifts were paying no premium. included in this group were banks that have never paid any premium for their, in some cases substantial, coverage and fast - growing entities whose past premiums were extraordinarily small relative to their current coverage. we believe that these anomalies were never intended by the framers of the deposit insurance fund act of 1996 and should be addressed by the congress. the congress did intend that the fdic impose risk - based premiums, but the 1996 act limits the ability of the fdic to impose risk - based premiums on well - capitalized and well - rated banks. and these two variables – capital strength and examiner overall rating – do not capture all of the risk that banks and thrift