framework vindicate the scope and magnitude of the regulatory measures, it should not mask the challenges that are associated with the implementation of the reform package. indeed, basel iii will have some potential transitional costs that arise as banks, on average, need to increase their capital base in order to fulfil the new requirements. while the basic assumptions on the m - m theorem may hold in the long term, financial markets are characterised by information asymmetries and frictions in the short run, which can be especially prevalent in distressed periods. bis central bankers ’ speeches banks have several possibilities to adjust their capital ratios. for instance, they can raise capital, increase lending spreads, reduce dividends and / or downsize ( risk - weighted ) assets. in practice, it is likely that banks ’ adjustment is going to be achieved through a combination of all these measures. there is empirical evidence, however, that in the short term and in crisis periods in particular, banks react to capital ( and liquidity ) constraints by de - leveraging and by tightening of credit conditions ( hempell – kok, 2010 ) that can have a measurable impact on loan supply and thus on economic activity ( de bondt et al. 2010 ). whatever methods banks choose to adjust their capital ratios, the overall effect is channelled to the macro - economy via various transmission channels. the macroeconomic assessment group analysed transitional costs related to a 1 percentage point increase in the capital ratio implemented over eight years, assuming a constant return on equity. the results of the study show that the transitional costs are subdued. the cumulated reduction of gdp relative to the baseline would amount to 0. 15 percentage points. similarly, the negative [ un - weighted median ] impact on bank lending to the real economy would be approximately 1. 4 % in cumulated terms. the lending rate spreads are estimated to increase by 15. 5 basis points. the peak impact would occur after 35 quarters from the beginning of implementation period but the negative impact recedes when the time elapses. the interim report of the macroeconomic assessment group assessed also the implications of new tighter liquidity requirements. a 25 % increase in the holding of liquid assets was estimated to yield a fall in lending volumes of 3. 2 % and a [ median ] increase in lending spreads of 14 basis points after four and a half years. this would induce a [ median ] decline in gdp of 0. 08 % relative to the baseline. however, as the new liquid

bond markets and it soon became the benchmark yield curve for all of the eurozone. eventually, we hope to see a similar benchmark yield curve in the philippines. one that can potentially be smoother than the bval curve. we hope that we can get ideas from this discussion on how some curve - it does not have to be the swaps curve - could gain wide acceptance as a benchmark among market participants. 1 / 2 bis - central bankers'speeches all of these may require some government initiative. it maybe that the regulators killed the interest rate swap market, but we want to understand what happened and what could happen after today. so, i hope with today's ese, an amazing thing will also happen, and i think this is a place where we can plant the usual seeds of collaboration to aid capital market development. on that note, i encourage everyone's active participation. let us have a very productive session. maraming salamat at mabuhay tayong lahat! 2 / 2 bis - central bankers'speeches