##r policy band. subsequently, mas tightened policy further in october 2010 by increasing slightly the slope of the policy band. 5. singapore ’ s financial system experienced some initial strains but otherwise has proven resilient during the crisis. banks and insurers maintained robust capital and liquidity buffers, and balance sheets were relatively strong. their prudent risk management allowed them to weather the crisis well. mas has also remained vigilant through the crisis, with my colleagues working hard to ensure that our regulatory and supervisory efforts remain robust. challenges ahead 6. to maintain sustained growth, sound economic management, with an appropriate mix of mix of policies, is essential. sound monetary policy, together with the appropriate fiscal policy, contributes to macro - economic stability. however, it is structural policies that we must turn to, if we are to successfully meet the challenges brought about by demographic bis central bankers ’ speeches changes, technological advancements and globalisation. macroeconomic or financial policies cannot work in isolation, and indeed, an over - reliance on any specific policy instrument can create unintended consequences. the robust recovery in the singapore economy reflects in part the judicious mix of policies that the government has pursued. 7. this year, the singapore economy is expected to expand at a more moderate pace of 4 – 6 %, driven by the services sector which is expected to benefit from robust regional demand. the imf projects that the global economy will expand by 4. 4 %. nevertheless, the road ahead remains challenging. 8. first, the pace of recovery varies across economies. many advanced economies are weighed down by the protracted process of restructuring of financial systems and fiscal consolidation. in comparison, asian and most emerging economies, including singapore, have bounced back decisively, and are now facing rising inflationary pressures because of tight factor markets and higher global commodity prices. the growth differential and the very accommodative monetary conditions in the advanced economies have also resulted in a strong surge in capital flows into asia. however, in more recent weeks, the more positive data in the us has resulted in some flow - back to the us markets. this more variegated and dynamic landscape means financial markets are likely to remain volatile in the months ahead. we need to be prepared to manage this volatility. 9. second, policymakers not only have to grapple with the aftermath of the financial crisis, but also the medium term structural challenges facing their countries. there are significant differences in the pattern of saving

depending on economic and financial in november 1997, four financial institutions - - namely, sanyo securities, hokkaido takushoku bank, yamaichi securities, and tokuyo city bank - - went bankrupt in succession. conditions of the time. it is important to accurately assess such potential vulnerabilities of the financial system from a macroprudential perspective and take appropriate policy measures. even if these measures are extraordinary or unconventional based on historical standards, the bank should take these measures when necessary to ensure financial system stability. at present, japan's financial system is maintaining stability, but i think that attention should be paid to the potential vulnerabilities. that is what i will talk about today ; more specifically, the problem of financial institutions'low profitability and intensified competition, with a main focus on regional financial institutions. this problem is closely related to japan's structural problems, such as a decline in population and the number of firms, and it is a phenomenon that advanced economies have never experienced before ( chart 1 ). in this sense, the impact of financial institutions'low profitability and intensified competition arising from the decline in population and the number of firms is a financial vulnerability that takes a totally different form from the past. regional financial institutions need to appropriately address this issue in order to continue to play an important role in supporting the regional economy. the bank also has to explore a new frontier of prudential policy by itself. ii. assessment of systemic risk before going into a detailed explanation about the potential vulnerabilities of japan's financial system, let me first talk about macroprudential policy. if the financial cycle becomes large in magnitude or many financial institutions become more interconnected by increasing common exposure or forming mutual asset - liability arrangements, systemic risk will emerge and spread within the financial system. the objective of macroprudential policy is to strengthen the resilience of the financial system and contain systemic risk. in order to implement macroprudential policy, we first need to assess systemic risk. specifically, the assessment is composed of two main parts. the first is to assess the financial cycle. we examine whether the current conditions are in an expansion phase or a contraction phase of the cycle, considering the outlook. the second is to identify sources of systemic risk, or potential financial vulnerabilities, and to diagnose the financial system's resilience to the stress. for example, we conduct stress testing to assess whether financial institutions have sufficient