Ravi Menon: Whither Asian banking? Opening address by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the Symposium on Asian Banking and Finance, jointly organised by the MAS and the Federal Reserve Bank of San Francisco, Singapore, 28 May 2015. *  *  *  Dr John Williams, President and CEO, the Federal Reserve Bank of San Francisco, Distinguished guests, colleagues, ladies and gentlemen, Good afternoon. And a warm welcome to Singapore and to the Symposium on Asian Banking and Finance, jointly organised by the MAS and the Federal Reserve Bank of San Francisco. Banking systems have returned to a more stable footing since the Global Financial Crisis. •  Banks are holding larger capital and liquidity buffers than before. •  Their return on equity (ROE) continues to recover. According to a McKinsey survey of the 500 largest banks in the world, their ROE averaged 9.9 percent in the first half of 2014, within a whisker of the long-term average of 10 percent. But these overall numbers mask wide variances in performance across banks and geographies. •  Banks in Emerging Asia report average ROE of about 15%. •  Among advanced economies, US and Canadian banks lead the pack with ROE of over 9%, compared to about 2% for their Western European peers. Asian banks have strengthened their position since the Global Financial Crisis.
This fact, highlighted many years ago by Steve Davis and John Haltiwanger in the US, was no less apparent during the great recession in the UK. Employment fell by over half a million between 2008 and 2010. But even over that period there were over nine million new jobs created, over ten million if you include job-to-job flows. On average, over the past 10 years, gross inflows and outflows into and out of employment have run at an annualised rate of around one sixth of the stock (Chart 1). As I say, this has been long understood. Nor should it be forgotten that, whatever the complicated texture underneath, the aggregate economic data still exhibit significant empirical regularities over the business cycle. Chart 2 is one example. Using annual data during the inflation targeting period, the black line plots annual growth in average earnings, less inflation expectations, against the rate of unemployment. At least until the past couple of years, when AWE growth appeared unusually weak, the fit was pretty good. Higher unemployment has gone hand-in-hand with lower real wage growth. Uncannily, the regression line was pretty much exactly the same as that identified by A.W. Phillips, using data from the classical gold standard period (1870–1913), in the 1958 paper that gave the relationship its name (that regression line is in blue). Yet, from time to time, what happens under the surface has material effects and can distort these aggregate relationships. Today I want to describe one such example, involving compositional shifts in the labour market.