amando m tetangco, jr : breakthroughs and break through speech by mr amando m tetangco, jr, governor of the central bank of the philippines ( bangko sentral ng pilipinas ), at the “ bank marketing summit ” & induction of bmap of officers, manila, 29 january 2008. * * * the officers and members of the bank marketing association of the philippines ( bmap ), colleagues in the banking industry, special guests. good morning! i am pleased that bmap has chosen a challenging and exciting theme for this year ’ s bank marketing summit : breakthroughs & break through. to me, this signifies a strong commitment to raise the bar of service to bank clients ; to set the pace for responsive and responsible marketing ; to be more innovative and efficient in the way you communicate and listen to your clients ; and to incorporate social responsibility objectives in your marketing programs. you must realize that i have high expectations insofar as the bmap is concerned. i will explain why. ladies and gentlemen of the bmap. 2007 represents a significant turning point for our economy, with our economic fundamentals described as the best in two decades. in fact, our economy as measured by gdp is the best we had in three decades! inflation has been maintained at a low level ; so have interest rates. at the same time, the banking sector had one of its best years in 2007. that we achieved this in the face of many challenges … including record high oil prices makes this economic breakthrough truly exceptional. of course this did not happen overnight. i will not go into details because as responsible bankers i am sure you keep abreast of economic developments. i will therefore focus on the breakthroughs we have achieved in the banking sector. the bangko sentral in close coordination with banks and other institutions continued to work on key reforms to ensure adherence to the tenets of good governance for fairness, accountability and transparency ; we continued to align our practices with global standards, including international accounting and financial reporting ; we started implementing basel ii prescriptions for risk - based capitalization ; and we continued to expand the reach of our banking system to make it accessible and meaningful to the unbanked. the bangko sentral has also relaxed the rules governing derivatives activities of banks. the aim is to provide a framework where banks and trust entities could expand opportunities for financial risk management and investment diversification through prudent use of derivatives. this is consistent with

own currencies, while the european central bank and the swiss national bank extended credit in u. s. dollars amounting to $ 20 billion and $ 4 billion, respectively. these dollars were obtained from the federal reserve through currency swaps, that is, two - way lines of credit in which each central bank agrees to lend the other up to a fixed amount in its own currency. given the format of these auctions, no bank could be sure that it would win funds ; moreover, the three - day lag between bidding and receipt of funds implied that any particular bank's submission of a bid would not be interpreted as a signal of immediate distress. disruption and generates a further deterioration in macroeconomic activity ( mishkin, 2007c, 2008 ). monetary policy – that is, the management of the target federal funds rate – is the federal reserve's best tool for influencing the course of economic activity and mitigating the degree of macroeconomic risk. tool # 4 : changing the federal funds rate target to respond to macroeconomic risk in the speech on risk management that i gave last month, i outlined a systematic approach for coping with financial market disruptions ( mishkin, 2008 ). in this approach, policy needs to respond aggressively when a large financial shock becomes evident, and the degree of policy inertia in such circumstances may well be markedly lower than in more - routine circumstances. by cutting the target federal funds rate to offset the negative effects of financial turmoil on aggregate economic activity, monetary policy can reduce the likelihood that a financial disruption might set off an adverse feedback loop. the resulting reduction in uncertainty can then make it easier for the markets to collect the information that facilitates price discovery, thereby hastening the return of normal market functioning. to achieve this result most effectively, monetary policy needs to be timely, decisive, and flexible. first, timely action is crucial when an episode of financial instability becomes sufficiently severe to threaten the core macroeconomic objectives of the central bank. in such circumstances, waiting too long to ease monetary policy by lowering the federal funds rate could adversely affect the confidence of households and firms and thereby contribute to further deterioration of the macroeconomy ; waiting too long might also increase the overall amount of easing that would eventually be needed. second, policymakers should be prepared to take decisive action in response to financial disruptions. in such circumstances, although the most likely outcome – referred to as the modal forecast – for the economy may be fairly benign,