By doing so, they missed the negative effects and excesses that arise from the herd behavior of the financial institutions, many times a consequence of the pro-cyclicality that is inherent in the financial activity and the regulatory framework itself. The attention of the supervision was focused on the banking sector, but insufficient attention was given to its interaction with the non-banking financial sector, that by being much less regulated, in the meantime was increasing in size and importance. Also, as part of their general and commending goal to focus their supervisory approach on the most important risk sources of the financial industry, but also as a sign of their objective difficulty to keep the pace with the financial markets developments and innovations, the supervisory authorities relied more and more on the market discipline and on the sophisticated and unclear risk models of the financial industry, that also proved to be deficient. Some times, the structure of the supervisory authorities has proven to be fragmented or too complicated, giving rise to regulatory arbitrage by the market players. Other times, the resources needed to effectively perform the supervisory role have been limited, negatively affecting the supervisor’s performance. But this crisis showed that risk came also from other sources, out of the direct control of the supervisory authorities in a given jurisdiction. For example, the increasing asset prices were fueled by ample liquidity and credit conditions, which were often affected by international developments and financial flows.
exchange rate fluctuations between $ and major currencies. •  When $ appreciates against major currencies, there is translation loss when assets are reported in $  •  Likewise, when $ depreciates, there is translation gain  •  But these gains and losses mean little for international purchasing power of our OFR which is denominated in foreign currencies. 32. Focusing on overall profit figure therefore misses larger point about MAS’ underlying investment performance. 33. Investment gains on MAS’ foreign assets have in fact remained relatively stable for last five financial years. •  Holding $ exchange rate constant to strip out translation effects, foreign investment gains amounted to $ billion in FY2014/15, comparable to foreign investment gains of $ billion in FY 2013/14. Helping Singaporeans manage their finances 34. A key area of focus for MAS in last two years has been to help Singaporeans better manage their finances. A multi-pronged effort: •  Encourage prudent borrowing  •  Facilitate retail access to simple, low-cost investment products  •  Spur competitive pricing for life insurance products  •  Educate consumers on financial matters  Let me elaborate on each. First, MAS has put in place various measures to encourage prudent borrowing 35. Many safeguards already exist. BIS central bankers’ speeches  5  •  Amount of unsecured credit that FI can extend is limited to four times monthly income of borrower. •  Limits on both loan-to-value and loan tenure for both housing and motor vehicle loans extended by FIs.