Measured in conventional terms, the marked decline in house prices seen over the past two years has led to a pronounced deterioration in households’ balance sheets: house prices have declined by around 15% but the value of outstanding mortgage debt is largely unaffected. The lower level of house prices will eventually be reflected in a lower level of mortgage debt than otherwise as first-time buyers (and those trading up the housing ladder) enjoy the benefits of more affordable housing. But this effect will not fully materialise until the entire housing stock is turned over at the new lower price level, which may take a considerable time. In the meantime, not taking account of this missing liability exaggerates the deterioration in households’ underlying position. Moreover, by considering only the fall in prices of housing and financial assets, we could be exaggerating the extent to which people are actually less wealthy. For some households, these are their only form of assets. This is most obviously the case for the retired. But the largest asset owned by most people is not measured at all. It is the value of what they expect to earn in the future or, what economists refer to as “human capital”. Most estimates suggest the value of future earnings is significantly greater than the sum of net financial wealth and gross housing assets which typically forms the basis for balance sheet measures.
Adherence to this requirement will inject transparency, accountability and ensure the integrity of the financial system. It will prevent criminals from hiding their ownership of companies and assets through complex methods and vehicles. I last spoke at this conference in 2011. The theme of the 2011 conference was “Raising the bar in enforcement and compliance”. Looking back and taking stock of the present state, I am glad to see that the whole industry has matured and progressed in such a significant way. This is validated by the NCC report that the sector’s control measures for both money laundering and terrorism financing are strong. Further, fines imposed by the Bank on financial institutions has decreased over the past few years, reflecting the progress made by institutions in ensuring adequate controls. I hope the industry continues to strengthen its capability to fight crime. Another area in which progress has been made is the priority accorded within each institution to compliance. The focus of the compliance function has developed to become more comprehensive as financial institutions have a better understanding of the threats and risks involved. With increasing awareness of the direct and indirect costs of non-compliance, the compliance function is no longer viewed only as adherence to rules set by regulators, but is instead, an integral part of the organisation’s culture. The very fact that the theme of this 4/5  BIS central bankers' speeches  conference is on reshaping the future, governance and transparency is a testament to this.