of last year, many eurozone banks substituted the drying up of interbank funds in asia with increased inflows from head office, which enabled them to continue funding activities in asia. but towards the end of 2011, there was a discernible pullback in trade finance, project finance, and syndicated loans by several eurozone banks. specialist lending lines like shipping and aviation also experienced cutbacks. 17. well - capitalised global and asian banks with strong liquidity positions have, however, stepped in to fill the gap. for example, asian banks ’ market shares of export bills for singapore - originated trade activities rose from 36 % before the crisis to 55 % in the last quarter of 2011. a similar pattern can be observed for trust receipts, where asian banks ’ market shares rose from 55 % to 64 % over the same period. in fact, aggregate trade finance activity has continued to grow. 18. 2012 will be more challenging though. on the positive side, the funding situation for eurozone banks has improved, in the wake of the ecb ’ s ltro. in january this year, there were net inflows from head offices to the singapore branches of eurozone banks. 19. but deleveraging by eurozone banks is far from over. at the same time, the capacity of asian banks to fill the trade financing gap is limited : first, the us dollar loan - to - deposit ratios of asia ex - japan banks are already at elevated levels and could be a constraint. second, asian banks may be more selective about the risks they want to take on, given the uncertain global growth outlook. third, asian banks which are generally smaller may be constrained by counterparty limits from taking over the trade finance lines of the large european banks. fourth, asian banks will take time to build expertise in areas such as structured trade finance that the eurozone banks have specialised in. 20. deleveraging is a process not to be avoided but to be managed. the world as a whole has lived beyond its means in the years preceding the global financial crisis. many advanced economies grew rapidly on the back of easy fiscal policies, low interest rates, and excessive credit expansion. the emerging economies benefitted from this growth through exporting to the advanced economies. 21. the world must now work off these past excesses. debt in the advanced economies must come down to more sustainable levels before these economies can return to a bis central bankers ’ speeches balanced growth trajectory. this must mean lower consumption and

focus on the second type of objectives : the objectives of prevention and better resilience to terms of trade shocks. the first priority to improve prevention and resilience is to create sufficient countercyclical fiscal leeway, by limiting public debt, or even by accumulating budgetary reserves. in this regard, controlling the public payroll, which is the most dynamic item of expenditure in times of growth in many poor and vulnerable countries, as well as improving the efficiency of public spending, are essential. consideration should also be given to setting up fiscal rules on the basis of deficits excluding commodity - related receipts, adopting stricter debt ceilings for the public sector and creating an adequate savings buffer for countercyclical purposes, taking into account the scale and length of commodity price cycles. in countries exporting non - renewable commodities, in particular oil, this savings buffer must be even more substantial since it must aim to cover not only the decline in the value of receipts but also part of the decline in the value of reserves. the second priority concerns the diversification of the economy. industrial policies based on sectoral subsidies or tax expenditures are not viable in the event of a fall in commodity prices and make the policy of diversification pro cyclical. public action should instead focus on improving the business climate, which is the only way to promote entrepreneurship in the formal sector and ultimately improve the country ’ s international attractiveness. diversification is only sustainable if one avoids the dutch syndrome, characterised by an excessive appreciation of the real exchange rate, restricting the growth of other export sectors. the accumulation of external savings contributes to this objective. finally, the third priority concerns the robustness of the financial sector. i will emphasise the importance of measuring, via stress tests, the potential effects of a sharp drop in commodity prices on the solvency of the banking system. these stress tests make it possible to determine the adequate level of bank capital needed to withstand shocks. * * * allow me to conclude briefly by expressing once again my gratitude to all the speakers and participants who came here today to share their thoughts on these crucial issues. i wish you fruitful exchanges and now give the floor to patrick guillaumont. thank you for your attention. 3 / 3 bis central bankers'speeches