down in 2008 but in the first three months of this year, they increased substantially. the rbf was forced to introduce policies in april to bring the lending rates down. this was important, especially at a time when our economy was being hit by the global downturn and also the effects of severe flooding in early january. the lending rate is now down to about 7. 8 percent. i expect it to go down further, because we have told the banks to take their average lending rates down to the levels of december 2008, so there are still some more reductions to be seen. the weighted average bank deposit rates which were falling last year, have since been on an uptrend. i expect the deposit rates to be positively influenced by the reserve bank ’ s policy directive on bank spreads implemented in april, which has been set at 4 percent. these were very tough decisions, but we had to take them to assist the growth of our economy and i must say that the banks are co - operating well with the reserve bank. i know that they are not very happy but in the interest of the country, i am seeking their co - operation to continue to bring lending rates down. we would like to think that our policy efforts this year have been successful, in the sense that foreign reserves and banking system liquidity have improved to comfortable levels and interest rates have started to drop, thus assisting in economic recovery. i am glad to state that our financial institutions remain stable and resilient despite the massive problems globally. liquidity risk management i would like to make some specific comments on the topic of this year ’ s annual workshop. as supervisors, we have been focusing on the maturities / mismatch of bank ’ s assets and liabilities and requiring our banks to establish their asset - liability management frameworks. under normal conditions, this risk can be managed relatively easily. however, it is far more difficult to deal with, in periods of unanticipated system - wide demand for liquidity during times of system - wide stress, such as the one we have just experienced, significant liquidity demands can come from both the asset and the liability side of a bank's balance sheet. on the liability side, banks can face challenges in refinancing short - term debt in the money markets. this is such a significant issue for us in the pacific given our not - so developed secondary money market. on the asset side, off - balance - sheet exposures can unexpectedly come onto a

bank's balance sheet. effective liquidity - risk management is therefore important - and especially challenging - during periods of financial stress, when liquidity in the financial system is not adequate and when some of our banks may find it more difficult to fund themselves. indeed, some of the recent challenges in liquidity - risk management are related to the increased interconnectedness of global markets and the speed with which market prices can change. international supervisory principles for sound liquidity risk management and supervision have identified the need for banks to establish a robust liquidity risk management framework that is well integrated into the bank - wide risk management process. a primary objective of the liquidity risk management framework should be to ensure, with a high degree of confidence, that the bank is in a position to both address its daily liquidity obligations and withstand any period of liquidity stress. i have also read that there have been calls for the assessment of potential liquidity risks to be fully integrated into a bank's capital analysis. even though strong capital positions reduce the likelihood of liquidity pressure, apparently solvent banks can suffer liquidity problems. through stress testing and scenario analysis, banks should be able to capture liquidity problems that they may be facing both at institution and systemic levels. with this, banks should still be able to assess the impact that problems in funding - liquidity risk can have on their capital adequacy. if recent events have taught us anything, it is that, banks need to carefully manage their own exposure to liquidity risks. because liquidity problems can have significant effects on both sides of banks ’ balance sheets, liquidity risks should be evaluated and addressed on an enterprise - wide basis, and should be tightly integrated with capital planning. supervisory initiatives supervisors are collaborating to understand the causes of the recent turbulence and to identify steps to mitigate future problems. our gathering here this week is to try to identify those liquidity challenges, and how we as supervisors are positioned to meet these challenges. i would like to emphasise that the achievement of sound liquidity for banking organisations is an objective that is not isolated. it is thus critical that necessary policies are implemented to ensure that liquidity situations of our licensed financial institutions are sound and stable. i would also wish to highlight that though the global financial meltdown was triggered by poor credit risk management oversight, poor governance practices remained the root cause of the global financial crisis. liquidity risk oversight by the board and senior management of banks is therefore an important issue which i guess our