the private sector which has been borrowing heavily from overseas, not the public sector. and while some of this borrowing has been done by the corporate sector directly, much of it has been done by the banking sector. comparable levels of overseas borrowing by banks in other countries have been sufficient to make foreign lenders very nervous ( for example, in some asian countries in recent years ), and yet similar nervousness has not been at all evident in new zealand. why? i can only conclude that the foreign lenders take considerable comfort from the fact that most of the banks operating in new zealand now are in fact wholly - owned by foreign banks, or are indeed branches of foreign banks. those parents are seen as being financially strong, and fully able to back the operations of their new zealand subsidiaries or branches. ( it may also be relevant that, overwhelmingly, the overseas borrowing being undertaken by new zealand banks carries no foreign exchange risk for the banks themselves. ) in some countries, there is political reluctance to allow foreign institutions unrestricted entry into local banking sectors. i would have to say that, as a country where all but one of our 17 banks are owned and controlled overseas, we have seen absolutely no disadvantages from this situation, and many advantages. we have a financially stable banking sector, with vigorously competing and highly innovative banks, all of them subject to the monetary policy influence of the central bank. i have no doubt at all that the banking sector is considerably more stable than would have been the case had all the banks been domestically - owned, whether in the private sector or in the public sector. monetary policy lessons from new zealand lesson 3 : keep prices stable the third lesson from our experience has been the crucial importance for financial system stability of keeping prices stable. i am sure that for this audience the assignment of monetary policy to the objective of keeping prices stable is not extraordinary, as evidenced by price stability being the primary objective of the single monetary policy of the eurosystem. but let me comment on the link between price stability and financial system stability. by the late eighties, new zealand had experienced nearly 20 years during which consumer price inflation had been above 10 per cent almost without a break. interest rates after adjustment for tax and inflation were often strongly negative, and there was as a consequence a strong incentive to invest in real estate and shares, using as much borrowed money as could be obtained. this was undoubtedly an important contributor to the severe difficulties which both the corporate sector and some parts of the banking sector experienced when

of macroprudential measures to tame excesses in the housing market. while we do not as yet have a completely coherent policy framework, the main outlines of singapore ’ s approach are becoming clearer. it includes a suite of tools ranging from prudential instruments like loan - tovalue ratios and fiscal measures like stamp duties on property transactions, to supply - side and other administrative measures. singapore does not target asset prices but keeps a close watch on asset price movements, looking for signs of speculative froth, excessive leverage, or concentration risks. 19. systemic stability is also a shared responsibility. it requires coordinated efforts across different government regulators and agencies. mas is fortunate in this regard. as an integrated regulator which supervises the banking and insurance industries, as well as the capital markets, mas is well placed to take a comprehensive view of risks within the financial system as a whole. as a central bank responsible for macroeconomic stability, mas is also able to monitor and understand the effects of monetary and liquidity conditions on systemic risks. and mas works closely with other government entities on issues such as system - wide safety nets – such as the deposit guarantees of 2009 and 2010 – taking a comprehensive whole - of - government approach. reconciling international standards and domestic discretion 20. the third dimension of rebalancing in regulatory reforms is that between international standards and domestic discretion. we have known for some time that we live in a globalised, interconnected world. but we did not know the extent of our interconnectedness until the crisis hit home. cross - border bank lending is more than 40 per cent of world gdp. global finance is really a vast and complex network of connections. financial shocks are transmitted through this network with speed and virulence. regulators used to worry about institutions that were “ too big to fail ” ; now, they worry about institutions that are “ too connected to fail ”. size matters ; but connectivity matters more. 21. this high degree of interdependence means that governments in major economies can no longer act in isolation. regulatory policies must be globally consistent to minimise the risk of arbitrage. supervisory actions must be internationally coordinated to maximise their effectiveness. 22. yet, regulation and supervision is essentially a national prerogative, that must cater to the domestic context and circumstances to be effective. recognising this tension, international policymakers have focused on reaching consensus on international standards that serve as a minimum benchmark, while allowing countries the