services, capital and labour within the eac ; hence it has profound implications for financial services. in principle the common market should eventually allow banks headquartered in any one partner state the “ right of establishment ” in each of the other partner states and allow citizens of each partner state to purchase financial services from banks in the other partner states. precisely how the “ right of establishment ” will operate with respect to banking has yet to be decided. for the banking industry, a key question is whether all banks, including those headquartered within the eac, should only be allowed to take deposits in any individual partner state if they operate as a fully capitalised subsidiary in that state, rather than merely as a branch. i think that the recent experience in the european single market should caution us against permitting bank branching across borders. the creation of a common market should lead to more efficient financial services. i mentioned earlier that i believe that some consolidation in the ugandan banking sector will be necessary and beneficial. in particular larger banks will be better placed to take advantage of the expansion in the size of the market created by the common market and to reap economies of scale which can bring down the very high operating costs as a percentage of assets which afflict banks in uganda. lower operating costs will in turn help to reduce intermediation spreads which will benefit bank customers in the real sectors of the economy. to create an efficient common market in banking services it will be necessary to harmonise many aspects of bank regulations across all five partner states. this is necessary to create a level playing field for banks and to prevent regulatory arbitrage whereby banks aim to operate from the jurisdiction within the eac with the weakest regulations. i mentioned earlier that the bank of uganda will advise the minister of finance to raise the minimum paid up capital requirement for banks. the increase in part is motivated by the need to align our capital requirements with those of our partners in the eac. kenya will raise its minimum capital requirement to ksh 1 billion, which is nearly $ 13 million, by 2012. other aspects of bank regulations will also need to be harmonised, including permissible activities, restrictions on loan concentrations and liquidity requirements. conclusion i have covered a lot of ground in this talk so i shall refrain from detaining you for much longer. i would like to finish with the following conclusions. i am convinced that the banking industry faces exciting challenges in the years ahead. the prospects of sustained economic growth coupled with east african economic integration will offer banks

by the recent weaker - than - expected employment statistics. against such a background, japan ’ s exports and production have not emerged from the phase of crawling growth, and thus the country ’ s economic activity remains more or less in a lull. however, domestic demand has recently shown some signs of improvement. steps toward restoration and rebuilding following the great east japan earthquake are progressing, most notably in business fixed investment. private consumption has firmed up due in part to the effects of measures to stimulate demand for automobiles, such as the reintroduction of subsidies for purchasing energy efficient cars and the release of popular models of new cars. industrial production has begun to show signs of a possible improvement. as for the outlook, japan ’ s economy is bis central bankers ’ speeches expected to return to a moderate recovery path as the pace of recovery in overseas economies picks up, led by emerging and commodity - exporting economies, and as reconstruction - related demand after the earthquake disaster gradually strengthens. b. risk factors whether or not this projection is going to be realized depends on various risk factors. the one that the bank is most concerned with is, in short, uncertainties regarding the global economy. among them – including the prospects for the european debt problem, developments in international commodity prices, and the likelihood of emerging and commodity - exporting economies maintaining growth under price stability – i regard whether improvement in economic indicators in the united states can continue or not as particularly important and deserving of very careful monitoring, as this is attracting wide attention recently. the sustainability of the ongoing u. s. recovery requires careful examination, for two reasons. first, in the united states, there is rising bifurcation of the labor market into two groups : ( 1 ) those who have no concern about their employment and ( 2 ) those who do. the recent firm economic indicators reflect a recovery in consumption by the former group, which benefited from a decline in mortgage rates and rising stock prices. however, the distinguishing feature of the current business cycle has been a large increase in the number of the latter group – i. e., those who have concerns about their employment – and its size has not decreased notably even in the recovery phase. this could weigh on the u. s. economic recovery ahead. second, there is a possibility that a seasonal adjustment method used for major u. s. economic data had created some distortions due to the effects of the lehman shock, causing the data for the period from winter to early spring to be