qualitative measures, but broadly speaking they can be divided into the ladder of intervention, and requirements for good risk management, including the prudent person principle. these are both intimately connected to how we define capital adequacy. the ladder of intervention is critical to preventing gambling for resurrection : it formalizes and defines the power to intervene before the interests of shareholders and policyholders diverge, in the same way that debt covenants protect creditors by giving them the ability to intervene in clearly defined circumstances under which their interests will diverge from those of the providers of equity capital. the role of regulatory capital in relation to the ladder is to buy time for that intervention. it needs to be enough to withstand extreme but plausible events for long enough to allow an assessment of whether the firm can be rescued as a going concern – or whether changes in the external world have holed the business model below the water line : no amount of capital can keep a broken business model afloat for ever. rather, capital is like the bulkheads in the sinking ship : they don ’ t necessarily need to hold back the water forever, but must slow down its ingress for long enough to get the passengers and crew safely into the lifeboats. how long the defences are needed depends on the design of the ship – where are the lifeboats, are they clearly signposted, how many stairwells are there from the lower decks, and so on. so ease of exit is a crucial factor in capital adequacy too : how confident are we that policyholders can be protected in a worst case scenario, i. e. that if the firm is closed to new business the run off will be a solvent one. do existing concentrations get worse or new ones arise during run off? do new liabilities or exposures appear e. g. through higher collateral requirements or even forced close out by derivatives counterparties? the less confident we are that the firm can exit in an orderly way, the more remote we need to make the prospect of failure and the larger the cushion of financial resources we will need to see at the point of intervention. uncertainty and capital adequacy ease of exit is a consequence of the good risk management that pillar 2 requires of firms : risk management that is forward looking and prepares for unpalatable scenarios by structuring the balance sheet and business model appropriately. good risk management is also about organising the firm in a way that allows the adequacy of the goldilocks

zeti akhtar aziz : central banking in the 21st century – implications of economic and financial globalisation opening remarks by dr zeti akhtar aziz, governor of the central bank of malaysia, at central bank of malaysia ’ s high level conference 2009 “ central banking in the 21st century : implications of economic and financial globalisation ”, kuala lumpur, 10 february 2009. * * * honourable governors, distinguished guests, ladies and gentlemen, it is my pleasure to welcome you to the bank negara malaysia conference on " central banking in the 21st century : implications of economic and financial globalisation " that is being held in conjunction with the 50th anniversary of bank negara malaysia. indeed, the conference takes place at a time when we need to reflect on the many issues that are emerging from the current global financial and economic crisis and the new challenges and lessons it brings to central banks. we are most honoured by the presence of central banks from more than 50 countries who have come to be with us on the occasion of our 50th anniversary. this gathering has also brought together distinguished speakers not only from the central banking community but also outstanding scholars and senior practitioners from the financial services industry. it is hoped that this conference will contribute to a greater understanding to the issues confronting central banks in the 21st century. indeed, we are now in a world that is fundamentally different, a world that calls for a greater appreciation of the changes that need to be made to the systems and structures, to the institutional arrangements and mechanisms, and to the manner in which we operate in this new environment. the international dimension of these changes calls for an outcome in which the international financial system is less prone to disruptions and failures and in which economic progress is a shared prosperity among nations. globalisation has had a deep impact on the way modern economies function. the benefits of globalisation have accrued to diverse communities and regions but it has also brought with it significant risks. while the asian crisis showed the effects of globalisation, it also showed that asia was able to rapidly rebound and continue to benefit from increased international trade and financial flows. the rapid restoration of stability and resumption of growth had confined the crisis to asia. as the current financial crisis is translated into an economic crisis, its repercussions are now being felt on a global scale. while the turmoil had its origins in the developed economies, its continued escalation has extended the effects of the crisis to the rest of the world. economic and financial globalisation thus not only