Nor Shamsiah Mohd Yunus: Crisis preparedness menu for guardians of financial stability Opening address by Ms Nor Shamsiah Mohd Yunus, Deputy Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the 14th IADI Conference on “Crisis Preparedness Institutional Arrangements and Coordination, Crisis Communication and Contingency Planning”, Kuala Lumpur, 28 October 2015. *  *  *  It is a great pleasure to be here amongst the company of distinguished members of the deposit insurers’ fraternity, fellow supervisors and central bankers. We meet here today, almost seven years, after the collapse of a single firm that shattered conventional wisdom and redefined the “rules of the game” for the management of financial system stability. Seven years later and counting, the path to sustainable recovery remains unclear. The cumulative impact of reforms in the financial sector also remains to be seen. In such an increasingly unpredictable world, crisis preparedness has become more important. Much is already being done on various fronts to prepare us better to manage crises. This has mostly focused on policy reforms, the supporting infrastructure and institutional arrangements. Also important however, and much less discussed, are aspects of crisis preparedness that cannot easily be reduced to a pre-defined framework or template for action. These aspects are humility, agility and trust, and this is what I would like to address today. Let me begin with a short story. On 10 May 1996, three teams set out to conquer the world’s tallest peak, Mount Everest.
The nontradable goods sector will require more domestic resources. 2/6  BIS central bankers' speeches  Graph: Labour market in a three-sector model As a result of higher labour demand from the non-tradable sector, the general wage level will increase, and the non-tradeable sector will expand at the expense of the two tradable sectors. Graph: “Spending effect” But this is only half of the story. The second part is the resource movement effect. Also the oil related-sector will demand more labour. As a result, wages will move up further, and the manufacturing sector will shrink even more. Graph: “Resource movement effect” This crowding-out of manufacturing is unavoidable if the benefits of the oil resources are to be enjoyed. But the process may go too far. The economy may find itself in a difficult situation when resources are exhausted. The structural changes in the economy have to be reversed. Workers who become unemployed must find new jobs in manufacturing. This could be quite challenging. It is at this stage you can really assess whether a resource economy has escaped the “Dutch disease” or not. Gagnon (2018) argues that the necessary adjustment costs will be minimised if spending follows the permanent income principle, i.e. the expected real return of the resource wealth should be spent every year. On this background he claims that Norway has saved too much and that spending should rather have been based on a modified version of the permanent income principle.