both the micro and macro level face no shortage of challenges. internationally, with economic growth slowing in the major developed economies, the problems in international credit markets are still serious, and inflation rates still strong, and although there are signs of some deflationary trends, the task for policy makers is as delicate as any faced in many years. though the region has over the years substantially improved its macroeconomic fundamentals and is better suited to face external shocks, there will be fallout from the current turmoil. market volatility will undoubtedly lead to sharp downward growth revisions for 2008 and 2009, as the decline in global demand will tend to reduce regional exports of goods and services. in addition, the fall in interest rates in the u. s. will impact on both fixed and floating exchange rate regimes, while the decline in global liquidity will force curtailment of foreign direct investment and cross border flows. how we respond to the problems posed to us by the recent upheaval will be important for the robustness of the regional economy going forward. though the direct impact on the regional domestic banking sector has not been significant, largely because of the lack of sophistication and the relative of risk aversion if our regional banks, there are lessons we can draw from these events. we must respond to these changes by further strengthening our efforts at maintaining financial system stability with adequate rules and regulations while avoiding over - regulation. it happened after enron with sarbannes oxley which tended to go overboard without, some would say, achieving sufficient strengthening of the system – the results of which we are seeing today. many have now related the current crisis to market over - exuberance, coupled with less than all - encompassing regulation which was necessary to monitor the very rapid changes in derivative and structured finance instruments. the innovations and developments which spawned such instruments increased the complexity of financial transactions and made their traceability difficult. such changes were also supported by increasing levels of excess liquidity, low interest rates in the global financial market and the increased demand for variations in financial instruments, given different consumers'risk profiles. consequently, there was a further blurring of financial intermediation roles between the traditional banks and non - bank market players. risk - shifting and risk transfer eventually forced the collapse we are witnessing today. what these developments have demonstrated is that adequate regulation of the financial system in the us is important to the rest of the world. while these guidelines are set in the developed world the failure of regulation impacts us all

domestic currency and a flight of capital, which depresses the value of the currency. this was the experience of indonesia, russia, brazil, mexico and many others. as everyone knows, the fixed barbados dollar peg is the bedrock of our economic stability. financial stability therefore becomes central to the barbados central bank ’ s concerns, because the stability of the financial sector, along with the credibility of fiscal policy, are the things that reassure the holders of financial assets that their barbadian dollar investments are perfectly safe from devaluation. the concern for financial stability encompasses insurance companies, credit unions, mutual funds and all other financial institutions, not just commercial banks. the stability of the entire system is the business of the central bank, even though the central bank has regulatory responsibility only for commercial and international banks. all central banks now have a financial stability mandate, even those which, like the bank of england, have no regulatory responsibility at all. all uk financial institutions are supervised by the financial services authority of that country, but it is the bank of england that conducts financial stability analysis and publishes the financial stability report periodically. there is no contradiction in this arrangement. financial regulation has to do with the licensing and health of individual financial institutions, while financial stability speaks to the health of the financial system as a whole. regulators maintain oversight of prudential indicators, do inspections of financial institutions, make informed judgements and issue instructions for remedial action ; the central bank, in its financial stability role, considers economic as well as prudential indicators, takes account of economic forecasts at home and abroad, and analyses the implications of relationships among financial institutions, in order to make judgements and policy recommendations where necessary, for the financial system as a whole, or for segments of it. the central banks ’ overall concern for financial stability is therefore wholly compatible with the existing arrangements for the regulation of non - bank financial institutions in barbados, as well as with the proposed financial services regulatory commission for non - banks. the framework for financial stability in barbados there have been two published reports on financial stability in barbados, both prepared by the imf, with input from the central bank of barbados, in 2004 and 2009. they both found the financial system to be sound, and the risks to which it was exposed manageable. in addition, there is an academic assessment of the barbadian financial system published by myself and three colleagues at the central bank, which contains much of the analytical work on which the imf ’ s