No one knew how large the losses would be and whether the reserve capital would suffice. Funding ran short. Because what financiers in the market would want to give loans to a bank that appears unsteady? And who would want money in an account in this bank? I am sure you will remember the pictures of the queues outside Northern Rock’s branches in the United Kingdom. To restore confidence, the state and the taxpayers in many countries had to inject capital and go in as owners of the banks. This would not have been necessary if the banks had held more capital when the dark storm clouds gathered in summer 2007. The Basel Committee has taken note of this. The current capital requirements are being raised substantially. If I may go into technical details, the new regulations require that the  BIS Review 159/2010  3  banks should have a Tier 1 capital corresponding to at least 6 per cent of their assets, or more correctly their risk-adjusted assets. The risk adjustment means that for each asset one recalculates the value, depending on whether the value of the asset can be regarded as certain. One sign of this might be, for instance, that the value of the asset has varied a lot. The higher risk an asset is believed to entail, the more capital needs to be allocated. At present, the minimum requirement for Tier 1 capital is only 4 per cent of the total riskweighted assets.
While the shift in foreign worker policy is necessary to allow for a more efficient allocation of resources and a more productive workforce, the latter will take time to come to fruition. During this transitional phase, business costs are likely to rise somewhat as a result of tight labour market conditions, before productivity gains catch up to offset the cost increases. In the short term, the prices of some consumer services – especially those with high labour content – can rise and indeed, have increased in the early months of this year. 2  BIS central bankers’ speeches  Reflecting these considerations, the tighter monetary stance adopted by MAS in April 2012 was a calibrated move to facilitate the ongoing supply-side adjustments, while anchoring inflation expectations. The policy stance was aimed at keeping the economy on an even keel with GDP growth expected to come in at 1–3% this year. We expect that headline and core inflation will ease gradually through the year, but along a somewhat elevated trajectory. Over time, the cumulative appreciation of the exchange rate will temper the pace of price increases in the economy. MAS is firmly committed to our objective of price stability over the medium term, even as productivity improvements arising from the significant economic restructuring will help to prevent higher costs from fuelling strong price increases. To ease the immediate burden of price and cost pressures faced by households and businesses during this period of transition, the government has implemented a wide-ranging package of relief measures.