And there is now a new puzzle: why, despite this rapid fall in unemployment to 6%, have we seen such weak pay growth in the official data? On the average weekly earnings measure, annual private sector pay growth is running at just 1%, still below the rate of inflation. Had the MPC been told last November that unemployment would fall to just 6%, we would have expected pay growth to have been very considerably stronger. What has happened to what, hitherto in the UK, has been a relatively stable relationship between pay and unemployment? Part of the explanation for the weak growth in pay is surely the very low increase in productivity – if workers are producing less output per hour, there is less scope for pay rises. But even adjusting for low productivity by looking at pay relative to the output of the average employee, we find a very weak picture. Growth in “unit labour costs” has been negative over the past year. Not only have we been producing more but with relatively more people and hence lower productivity. We are also paying less labour cost per unit of output than we were before. There are, as always, possible seasonal and one-off factors: some patterns of pay seem to have been distorted by the change in income tax rates in April last year, which cloud annual comparisons.
(iii)  Third, our approach must be sensitive to the impact on industry. No new regulation is costless. MAS must weigh the cost of new regulations on institutions which have to comply with them, against the broader benefits that those regulations have for the economy and society. With these principles in mind, I will now outline MAS’ approach to the issues I mentioned earlier. I will first touch on what Basel III will mean for Singapore’s capital adequacy requirements. After which, I will share MAS’ views on the current debate on universal banking. Capital requirements for locally-incorporated banks MAS has reviewed its bank capital adequacy rules. We will require Singapore-incorporated banks to meet Basel III earlier and at a higher standard. Singapore-incorporated banks will be required to meet the Basel III minimum standards by 1 January 2013, ahead of the Basel Committee’s January 2015 timeline. Singapore banks are well-capitalised and are in a good position to adopt Basel III sooner than 2015. Moreover, the long phase-in period provided by the Basel Committee was to ensure that the new requirements did not stall the economic recovery in countries that were at the centre of the crisis. Singapore’s situation is different: the recovery has been robust and the economy is well above pre-crisis levels. MAS will increase the minimum levels of common equity that locally-incorporated banks will be required to hold. The experience of other countries in the recent crisis shows that common equity is the most effective capital instrument to absorb losses and write-downs.