Detecting bubbles The word bubble is sometimes employed to describe any quick and large increase in asset prices, but a more precise definition would associate bubbles with only those increases in asset prices that are not due to economic fundamentals.4 Under such a definition, a bubble is present when investors buy assets at prices above their fundamental values in the expectation of being able to sell them at even higher prices in the future.5 To be sure, such departures from fundamentals may start small, but over time they could grow explosively.
In particular, the BSP will continue with the banking reform agenda, including the adoption of Basel 3 capital adequacy standards in January 2014. Finally, financial stability must then mean that we have an efficient payments system that is responsive to the business needs of the community as well as in providing the needed market infrastructure for investors.