no. 130 requiring the board of directors of banks to, among others, adopt and maintain adequate risk management policy was issued. a few months after, or in october 1997, the bsp also issued circular no. 145 requiring banks to develop and implement a compliance system and to appoint / designate a compliance officer to oversee its implementation. in september 2001, the bsp issued circular no. 296 which implemented the fit and proper standards for directors and officers of banks and non - banks as mandated by the general banking law ( gbl ) of 2000. the same circular also prescribed a mandatory orientation program on corporate governance for banks ’ board of directors. moreover, the bsp issued in october 2003 circular no. 410 which provided the accreditation guidelines for banks ’ external auditors. in 2004, the bsp continued to issue a number of guidelines that aimed to further enhance governance practices in banks. earlier that year, the bsp issued the guidelines for the management of banks ’ large exposures ( circular no. 414 ). this was followed by the strengthening of rules on connected party transactions or dosri by expanding both the coverage of transactions and the definition of related interests ( circular no. 423 ). the bsp also issued circular no. 429 that year which aimed to further strengthen banks ’ compliance function. the bsp also issued that year the guidelines for the development and implementation of banks ’ internal credit risk rating systems ( circular no. 439 ) in anticipation of basel ii. the guidelines strongly emphasize the oversight function of the board of directors over these systems. before 2004 ended, bsp issued circular no. 456 amending the provisions on the specific duties and responsibilities of the board of directors in the manual of regulations for banks. the said circular created three board - of - director - level committees, namely ; audit committee, corporate governance committee, and risk management committee. this year, the bsp pushed forward with its shift to risk - based supervision by issuing the guidelines on the supervision by risk, setting forth the expectations of the bsp with respect to the conduct of risk management by financial institutions under its jurisdiction. this was followed closely by the issuance of the guidelines on technology risk management, which is aimed at ensuring effective management of technology - related risks by financial institutions. just recently, the bsp issued broad guidelines on market risk management and liquidity risk management, which set forth bsp ’ s expectations on the management of these risks by banks. bsp ’ s risk - based capital

both with respect to the medium term and the longer term. given the inherent uncertainty surrounding long - term growth forecasts, the formidable rise in costs associated with providing for an aging population with longer life expectancy, and a potentially protracted elevation in national security costs, it makes sense to build a stronger financial position into our fiscal future. the present fiscal trajectory entails an uncomfortable scale of borrowing and little insurance against possible adverse outcomes in an uncertain world. building a stronger fiscal cushion can help reduce the risk of adverse outcomes - those that might come in the form of a decline in the willingness of foreigners to acquire claims on the united states on the present scale, as well as those that might take the form of a reduction in private investment and lower future productivity gains. strengthening confidence in our fiscal management and fiscal sustainability is critical to reducing the risk in the size of our external imbalance. third, the u. s. and the major economies have an important role to play in encouraging further evolution in the international monetary system. policy makers in asia are well aware of the complications and costs involved in sustaining their current regimes. many are moving toward permitting more flexibility against the dollar, and even in their effective exchange rates. few however are comfortable with the prospect of accepting large short - term volatility and large movements over time in their effective exchange rates. they are looking for a world in which they can have more monetary policy independence, progressively more financial integration with the globe, and face less risk of large destabilizing moves in the major currencies and less vulnerability to acute pressure on their own currencies. the exchange rate system among the major currencies provides a desirable degree of flexibility in real exchange rates. although the process of cooperation among the g - 7 has not eliminated the large swings in exchange rates associated with large changes in fundamentals among the major economies, it has had some modest success in avoiding more damaging movements. this cooperative framework, characterized by a pragmatic approach to promoting greater stability in exchange markets, offers a reasonable model for cooperation among the major currencies and those of the emerging world. the challenge ahead is to help manage the transition to the monetary system that provides for more flexibility in the exchange rates of all the major economic areas, and this has to be handled with care. finally, it is important that the world ’ s major private financial institutions run themselves with a sufficiently strong financial cushion, a cushion calibrated not just against the risks they confront in this uncertain