Since market-based finance needs good collateral to grow sustainably, its availability directly influences the supply of finance to British households and businesses. The use of collateral is not without risks. When collateral values rise, fixed haircuts allow banks and non-banks to borrow more, pushing up asset values further. The reverse is also true. This inherent pro-cyclicality exposes the system to sharp corrections in collateral values. In extremis, a sell-off in financial markets leads to higher haircuts, a run on repo and ultimately a market freeze. To reduce these risks, the FSB has proposed minimum regulatory standards for collateral valuation and management as well as a schedule of numerical haircut floors to repo transactions. The FSB also now requires central clearing of “standardised” derivative transactions to limit exposures between counterparties, promote efficient netting of positions and moderate collateral cycles. New minimum capital and margining requirements for bilateral OTC derivative trades will similarly protect banks from defaults of their counterparties while reducing procyclicality in the system. The combination of such reforms and the experience of the crisis will mean that institutions both need more collateral and need to manage it better.9 Fortunately financial markets know  7  The ratio of US primary dealer fixed income holdings to bonds outstanding has fallen by between 70% and 85% since 2007. This measure includes US investment-grade and high-yield corporate bonds, non-agency MBS and commercial paper, and excludes government securities and Agency MBS.
This has prompted several emerging economies to restructure their fuel subsidies in an effort to create more efficient economies and to achieve more sustainable fiscal positions. This has been followed by the consequent adjustments in consumer prices as the gap between international market prices and domestic prices narrow. In Malaysia , petrol prices were adjusted by  BIS Review 90/2008  1  40.6% while diesel prices by 63.3%. This adjustment would be reflected in the consumer price inflation in June, which is expected to exceed 6%. Beginning 1 July, electricity tariffs have also been raised by up to 18% for households and an average of 26% for some commercial and industry users. While domestic inflation is expected to remain elevated for the remaining part of this year and early next year, it is expected to moderate in the second half of 2009. In the current international environment, the policy response needs to be contextualised to the conditions prevailing in each individual economy. In those economies that are experiencing overheating and strong demand conditions, there is greater clarity in terms of the need for policy to rein in demand. However, for economies that are experiencing moderating growth, the risks to growth and inflation need to be carefully evaluated. In addition, consideration needs to be given to the deflationary impact of the fuel price increases on consumption.