zeti akhtar aziz : reflections on small and medium sized enterprises keynote address by dr zeti akhtar aziz, governor of the central bank of malaysia, at the 7th conference of asia - pacific economic cooperation ( apec ) financial institutions dealing with smes, lanai kijang, 16 july 2010. * * * introduction this conference takes place at a time of great consequence for the financial industry as the world emerges from the recent global financial and economic crisis. attention continues to be focused on supporting this recovery process and to provide more permanent solutions that would ensure sustainable global growth. in relation to this, the development of small and medium sized enterprises ( smes ) is an important and urgent agenda. for emerging economies, in particular in the apec region, this is not only important as a driver of the economic growth process but also that it would achieve a more balanced growth. it is my pleasure to be here this morning to speak at this 7th conference of apec financial institutions dealing with smes, that is organised by the association of banks in malaysia. history has shown that in the 20th century, it was large corporations that drove economic progress ; particularly in the industrial economies. in this century, there is a discernible shift towards the increased importance of smes as drivers of growth. the growing importance of domestic demand and the emergence of new sources of growth and new business models have encouraged the emergence of small and medium size businesses. this trend is particularly pronounced in the apec economies in which the economic activities are now more diversified – with the growing importance of the services sector, with the agricultural sector becoming more advanced and the industrial sector being supported by a supply chain of small and medium scale businesses. in the apec region, smes account for 90 % of the total business establishments and 60 % of total employment. in malaysia, smes constitute 99 % of all businesses and 57 % of total employment. in terms of output, the sme sector in malaysia accounts for 35 % of gross domestic product and 20 % of total exports. the smes have the advantage of having greater flexibility and the ability to adjust more quickly to changes in the market. the smes also have the potential to meet the new challenges to raise productivity and performance. there is therefore enormous potential for smes to create significant positive value for the economy, and thus contribute towards sustainable and balanced economic growth, employment and social stability. this morning allow me to take this opportunity to share with you some reflections on sm

would actually choose to bail out debt holders in the event of a failure. bis central bankers ’ speeches form, existing and planned liquidity requirements produced by the basel committee aim mostly to encourage maturity - matched books. while maturity mismatch by core intermediaries is a key financial stability risk in wholesale funding markets, it is not the only one. even if an intermediary ’ s book of securities financing transactions is perfectly matched, a reduction in its access to funding can force the firm to engage in asset fire sales or to abruptly withdraw credit from customers. the intermediary ’ s customers are likely to be highly leveraged and maturity transforming financial firms as well, and, therefore, may then have to engage in fire sales themselves. the direct and indirect contagion risks are high. thus, the long - term and short - term liquidity ratios might be refashioned so as to address directly the risks of large sft books. similarly, existing bank and broker - dealer risk - based capital rules do not reflect fully the financial stability risks associated with sfts. accordingly, higher, generally applicable capital charge applied to sfts might be a useful piece of a complementary set of macroprudential measures, though an indirect measure like a capital charge might have to be quite large to create adequate incentive to temper the use of short - term wholesale funding. by definition, both liquidity and capital requirements would be limited to banking entities already within the perimeter of prudential regulation. the obvious questions are whether these firms at present occupy enough of the wholesale funding markets that standards applicable only to them would be reasonably effective in addressing systemic risk and, even if that question is answered affirmatively, whether the imposition of such standards would soon lead to significant arbitrage through increased participation by those outside the regulatory circle. in part for these reasons, a second possibility that has received considerable attention is a universal minimum margining requirement applicable directly to sfts. the financial stability board has already issued a consultative paper, and received public comment, on the idea. under such a regime, all repo lenders, for example, could be required to take a minimum amount of over - collateralization as determined by regulators ( the amount varying with the nature of the securities collateral ), regardless of whether the repo lender or repo borrower were otherwise prudentially regulated. this kind of requirement could be an effective tool to limit procyclicality in securities financing and, thereby, to