of the yield curve. the spread between long and short - term rates is often viewed as one of the most reliable cyclical indicators and a widening as a measure of the increased stimulus of monetary policy. but i viewed the widening in this episode as evidence of the reduced effectiveness of monetary policy in an environment where actions by bond - market participants were preventing long - term interest rates from adjusting in response to the policy - induced decline in short - term rates. at its peak in mid - 1992, the long - term treasury bond yielded 475 basis points over the three - month bill rate, about three times the average for the prior three decades. true, as the full dimension of the effects of the credit crunch became apparent, yields fell from those heights. but in the interim, monetary policy ’ s intentions were blunted by the market ’ s misreading of the economy. this probably prolonged the need for ease and further accentuated the required easing of the federal funds rate. as another example, i have spent enough of my career projecting near - term economic trends to be familiar with a forecaster ’ s favorite friend - - momentum. but momentum can easily be misjudged. it is easy to fall into the trap of presuming that what an economic actor did last is what that actor will do next. thus, market prices tend to extrapolate that changes in monetary policy cluster in the same direction. this is a rule that works often enough, but, as a look back to 1994 and 1995 reminds us, not always. by mid - 1994, the fomc had substantially raised its intended federal funds rate, but market prices seemed to say that enough was not enough. the tightenings in may and august of that year, for example, were greeted by a roughly parallel shift up in money market futures rates, implying that the actions had not gotten the federal reserve any closer to the goal line - - instead, the goal line had been pushed back. and the fed indeed did continue to tighten through early 1995. but by late 1994 and early 1995, the term structure spreads in financial markets remained very wide, implying an expectation of still significant further tightening. as a result, the restraint associated with the policy action was amplified. in retrospect, a tighter focus on fundamentals - - that policy was acting in a preemptive fashion to contain inflation, rather than an extrapolation of the sequence of recent policy actions - - would have helped to cap the rise in longer -

compared to ksh. 195. 6 billion in 2011. • the foreign subsidiaries had mobilised deposits worth ksh. 236. 5 billion compared to ksh. 152. 5 billion in 2011. ladies and gentlemen : this snapshot of cross - border operations of kenyan banks demonstrates that the banking sector has made a sizeable contribution to the economic growth of not only kenya but that of the entire eastern africa region and beyond. i note with satisfaction that the practices of kenya ’ s banks operating outside the country are serving as best practices in some of the host countries. i therefore commend the kenyan regional banks for their role in strengthening the financial sectors of the regional countries. bis central bankers ’ speeches ladies and gentlemen : the continued regional expansion of kenyan banks augurs well with the on - going eac integration process. allow me now to share with you the current efforts by the eac central banks towards the envisaged east african monetary union ( eamu ). the monetary union protocol was signed by the eac heads of state in november 2013 with an envisaged timeline for a single regional currency by 2024. pursuant to the protocol, the eac central banks are required to integrate their financial systems and adopt common principles and rules for the regulation and supervision of the financial system by 2018. in this regard, the eac central banks have already commenced efforts towards the harmonisation of the eac central banks supervisory and regulatory rules and practices. the starting point was a request in 2011 to the players, especially those with regional presence, to indicate the aspects they would wish to be harmonised. ladies and gentlemen : in order to achieve a harmonised and improved supervisory and regulatory framework, the eac central banks agreed to use the pronouncements by international standard setting bodies such as the basel committee on banking supervision ( bcbs ), financial stability board ( fsb ) and financial action task force ( fatf ) as a basis for the harmonisation exercise. the main aspects of the supervisory and regulatory rules and practices that will be harmonised include the legal status of licenced entities, licensing requirements, licence validity, prudential requirements on capital and liquidity, corporate governance requirements, permissible activities, prudential returns and public disclosures. the eac central banks have developed a convergence criteria for all aspects of divergence and expect to attain convergence by the monetary union protocol deadline of 2018. the benefit of these developments to kenyan banks is to increase the market size, allow diversity of