. in addition, the png sustainable development program company obtained a banking licence from the central bank to operate the png micro finance limited in 2004, and has operations in ncd and western province. the micro - finance industry development is a meaningful way of mobilizing savings and servicing a large section of the community that do not enjoy financial facilities. the government has also introduced the district treasury roll - out program, which will further complement the provision of financial services in the rural parts of png. this entails the provision of treasury, banking and post office services from one outlet mainly at local and district levels. i am still very concerned about fast money scams. hard working papua new guineans have lost funds to con - artists who operate these scams. the bank of png continues to warn the public about these scams and individuals must avoid risking their savings. i also call on your rural industries members to support the bank in warning people about these illegal scams. the bank of png is also supportive of the government ’ s initiatives to promote export driven economic growth strategy through removal of impediments to trade and investment. in recognition of this initiative, the bank liberalized the foreign exchange control regime by freeing up controls in all but areas which are : • opening of foreign currency or kina accounts offshore by residents ; • approval for capital transaction contracts ; • gold export licenses ; and • approval for dealing in foreign exchange. to date, consistent with the banks expectation, the liberalization has had limited impact on the balance of payment position of the country. this is the result of an close and on - going dialogue and communication between the stakeholders and the bank of papua new guinea. macroeconomic review what has been the end result of this massive financial sector reform? the end result is that it has helped to achieve macroeconomic stability that is necessary for inducing sustainable economic growth. the stability in macroeconomic environment is reflected by the following : • decline in inflation from double digit levels to an annual headline inflation of 4. 6 percent in december 2005 ; • stable exchange rate ; • historically high levels of international reserves of over us $ 760 million that is sufficient for around 8 months of non mineral and 6 months of total import cover ; • sound fiscal management by the government was fully supported by high mineral tax receipts and saving from the reduction in interest expenditure. this led to a fiscal surplus of 0. 3 percent of gdp in 2005 ; • efficiency gains from financial sector reforms leading to high profitability

of the regulated banking sector into the unregulated shadow banking sector. this development is something regulators have to watch closely. without any doubt, shadow banks can become a source of systemic risk, especially when they are highly interconnected with the regular banking system. it is therefore of the utmost importance to monitor shadow banks ’ activities and try to regulate them adequately. at their 2014 brisbane summit, the g20 agreed on a new roadmap for regulating the shadow banking sector. work is being conducted simultaneously by the fsb, the basel committee and iosco. but the ambitious reform agenda is far from completed. in my view, a key task on the way towards transforming shadow banking into resilient market - based financing is now to identify areas where additional fsb recommendations are needed and where existing recommendations should be made more precise. we have to bring forward this reform agenda with all our efforts. let me conclude the discussion of regulatory reform with something that seems very important to me. each of the regulatory projects i have discussed calls for international cooperation. if we do not coordinate our approaches towards regulation, we will create a fragmented financial system with vast opportunities for regulatory arbitrage. when all is said and done, we all pursue the same objective : a stable financial system – certainly at the national level, but it is equally important at the global level. as european and us regulators, we therefore must work together in an effort to avoid any form of fragmentation of the regulatory space. the issue of derivatives oversight is just one example of where international cooperation is essential. 3. the second mission : supervisory integration in europe ladies and gentlemen, i have discussed some of the regulatory answers to the financial crisis. but regulation is only one answer to the crisis. the crisis has also shown that banking supervision failed to keep pace with the increasingly international developments in the banking sector. instead, it remained confined within national borders. in europe, the response to this observation has been a leap in integration. this leap in integration is mainly characterised by the establishment of the european banking union, which will comprise of a single supervisory mechanism, a single resolution mechanism and harmonised deposit insurance. the single supervisory mechanism, the first pillar so far, went to work on 4 november 2014. on that date, the ecb assumed responsibility for supervising the 120 largest banks in the euro area – with the accession of lithuania, the number of supervised banks has risen to 123. these 123 banks account for more than 85 % of the aggregate balance sheet of the