amando m tetangco, jr : financial stability through collaboration and understanding speech by mr amando m tetangco, jr, governor of the central bank of the philippines ( bangko sentral ng pilipinas ), at the insurance congress of developing countries ( icdc ) 2009, makati city, 25 march 2009. * * * atty. eduardo malinis, insurance commissioner and chairman of the organizing committee of the insurance congress of developing countries 2009, other distinguished speakers, distinguished delegates to this insurance congress, ladies and gentlemen, good morning. to our visiting delegates, welcome to manila! welcome to the philippines! i hope you ’ ve had or you will have the chance to partake of the many options to help further “ stimulate ” our domestic economy. i am sure all of us in this room have heard about the different financial stability and fiscal stimulus packages, being pursued by economies across the globe, to help stem the impact of the current global financial and economic crisis. i am certain the organizers of icdc manila 2009 have also put together their “ own ” version of a post - meeting stimulus package to complement the many interesting conference breakout sessions. for my part, i ’ d like to encourage all of you to participate as actively in that endeavor as you would in the different sessions in the next three days. let me begin my remarks this morning by thanking commissioner ed malinis and the congress organizers for inviting me to speak before you today. at first blush, the keynote message for a gathering of insurers to be delivered by the governor of a central bank that supervises only the banking sector, may be a bit peculiar. but if one seriously looks at the situation, it is indeed quite reflective of the theme of the congress, which is financial stability through collaboration and understanding. ladies and gentlemen, at no other time than now has the need for promoting financial stability been more imperative. as we are all keenly aware, the current financial turmoil has gone beyond the borders of the epicenter of the financial crisis – the us and the major economies – and has reached the shores of emerging markets. more importantly, the global financial turmoil has transcended the bounds of the financial realm and has crossed over to the real sector of most economies, including several represented here today. you will be pleased to know that my remarks this morning will be brief. i only have two messages that i wish to bring across, in light of our desire for financial stability. first is that, information

total assets. against this background, both big banks have already made major strides towards expanding their loss - absorbing capital base. to this end, credit suisse issued contingent convertible bonds ( cocos ), while ubs retained its earnings. these important first steps have already significantly strengthened the big banks ’ loss - absorbing capital base. they also show that the big banks should be in a good position to build up the necessary, additional capital buffer. situation of domestically focused banks allow me now to discuss the situation of banks with a domestic focus. the capitalisation of domestically focused banks was almost unchanged in comparison to 2009. the short but sharp recession in switzerland in 2009 did not have any noticeable impact last year either. write - downs and provisions were at a historical low. in a long - term comparison, profits remained at a high level overall. likewise, the capitalisation of domestically focused banks hardly changed in 2010 and remains good in relation to both risk - weighted assets and total assets. however, the fact that capitalisation is high overall does not take into account that the regulatory capital requirements do not fully capture certain risks. for example, the interest rate risk and credit risk associated with potentially adverse developments in the real estate and mortgage markets are not taken into account, or only partially accounted for. yet these risks are especially pronounced in the current environment. on the one hand, interest rate risk for all domestically focused banks continues to remain at a historically high level. since there is a maturity mismatch between assets and liabilities, a rise in interest rates would result in losses for the banks. the overall high level of interest rate risk is driven by raiffeisen and cantonal banks. on the other hand, credit risk at domestically focused banks continued to increase. this is because the mortgage lending volume, which is closely linked to developments in the real estate market, continued to grow. the situation in the swiss real estate market has deteriorated slightly since last year ’ s financial stability report was published. even though they varied widely, most real estate price indices suggest that prices also rose substantially in 2010. there is still no indication of a general overvaluation based on the current price level, yet several indicators suggest that overheating is already becoming apparent in the owner - occupied apartment and apartment bis central bankers ’ speeches building segments. there are also considerable regional differences, although there are signs that, already now, real estate prices in some regions are no longer justified by fundamentals. should real estate prices continue to rise at