policy decisions made by the authorities. • secondly, the emergence of a globalised market has quite naturally led to new developments in monetary policy instruments. interest - rate instruments have gained in importance to the detriment of quantitative and regulatory instruments. third consequence : renewed set of risks to the stability of financial systems first of all, it is worth noting that financial liberalisation did not eliminate the occurrence of financial crisis. the development of new financial instruments, increasingly mobile and rapid capital flows, and faster reactions on the part of the players have rendered markets more volatile. moreover, stock market prices and interest rates in the various financial centres have become closely correlated due to increased arbitraging between currencies and financial products and the spread of disintermediated financing. in fact, the last two decades have experienced a string of financial crises : • banking crises in the united states at the end of the 1980s, in scandinavia at the beginning of the 1990s and subsequently in the rest of continental europe and japan ; • the 1987 stock market crash ; • the bond market crisis of 1994 ; • currency crises in the emerging economies, in mexico in 1994 and more recently in southeast asia from 1997 onwards, which spilled over into russia and latin america before spreading to the industrialised countries, as illustrated by the default of the ltcm fund. secondly, the trends at work in financial systems have triggered new threats of distortions throughout the markets. the interplay between participants ’ expectations, their self - fulfilling nature and market spillover pave the way for the emergence of possible financial bubbles. these bubbles are frequently fed by easy access to credit as well as the use of instruments with a high gearing effect. imbalances may thus arise and, in certain cases, be protracted. the current uncertainty regarding the valuation of new technology stocks is a prime example of this problem. the standardisation of risk management methods and the resulting herd instinct on the part of market - dealers brings with it a number of disadvantages, such as liquidity shortages on certain market compartments, which lead to more volatile prices, credit rationing for certain borrowers and micro - financial contagion whereby “ innocent victims ” bear the brunt of imbalances stemming from other economies. such risks have become greater with the development of over - the - counter derivatives markets, which are a potential source of instability for the overall financial system. liabilities are generally financed with credit, they are based on asymmetric information and risks are concentrated on

agus d w martowardojo : maintaining financial stability amid continued economic growth deceleration keynote speech by mr agus d w martowardojo, governor of bank indonesia, at the discussion and launching of the financial stability review book, jakarta, 10 december 2015. * * * honorable, our predecessors governors of bank indonesia, members of the board of governors of bank indonesia, officials in the ministries and state agencies, banking leaders representatives of industry associations academicians and economic observers attendees and invitees, assalamu ’ alaikum warahmatullahi wabarakatuh, good afternoon and best wishes to us all, first of all, let us pray our praise and gratitude to allah swt, the god almighty for only upon his grace and blessing, we can all gather here in good health to participate in the discussion and launching of the book on financial stability review ( kajian stabilitas keuangan - ksk ) no. 25, september edition year 2015. the development of this ksk constitutes a part of the transparency and accountability of bank indonesia ’ s duty implementation in the field of macro - prudential. as one of the routine semester publications, ksk contains the results of assessment and review of bank indonesia toward the condition of the national financial system. such assessment also covers our monitoring to the sources of vulnerability and imbalance of the financial system that can be found in the financial markets ; financial agencies / institutions, namely households and corporates ; banking ; and non - bank financial institutions ( institusi keuangan non - bank - iknb ) ; and also financial infrastructures. due to the deceleration of economic growth experienced by indonesia, it is critical for bank indonesia as the authority in the field of macro - prudential to continue maintaining the stability of financial system. especially, as the dynamics of the global financial system continue to remain under uncertainties. therefore, the edition of ksk this time takes up the theme of “ maintaining financial stability amid continued economic growth deceleration ” we are convinced that our duty in maintaining the stability of economy will be more challenging. hence, we expect that depth assessment and review on the condition of national financial system will be a valuable reference for us in taking measures in the future. ladies and gentlemen, the condition of indonesia ’ s financial system in 2015 in general is still overwhelmed by various challenges and fluctuations, both sourced from global and domestic. the still weak global economic recovery, the continued declining price of