News of Fed tapering in late spring last year reversed the flow of capital into EME-dedicated equity and bond funds, and emerging market currencies depreciated against the dollar. Sovereign debt yields rose sharply in vulnerable emerging market nations such as Brazil and Turkey. Sovereign debt spreads edged up in Mexico also, but significantly less so than in other EMEs. Much like in the morning after a party the night before, investors woke up sober and more discriminating. Why Mexico stands apart There are concerns that the outsized capital flows to EMEs during the QE era pushed down interest rates and led consumers and businesses to take on too much debt. Mexico seems better positioned than many other countries in terms of this risk exposure. While according to the Banco de Mexico, private lending is up 38 percent since its recession low in 2010, international comparisons based on World Bank figures show the rate of credit expansion in Mexico pales in comparison to other emerging market nations. Between 2009 and 2012, private lending as a share of GDP grew 5 percentage points in Mexico while jumping 20 percentage points in Brazil. The level of debt exposure is also lower in Mexico than in many other emerging market nations. Private lending as a share of GDP was 28 percent in  4  BIS central bankers’ speeches  Mexico in 2012, compared with 35 percent in Indonesia, 54 percent in Turkey and 68 percent in Brazil.
Therefore, we do not foresee a significant shift in our current approach to regulation following the proposed global financial reforms. In fact, this reinforces our thinking that the approach we are taking is appropriate for our system. Bank Negara Malaysia has been engaging the banking industry to better understand the impact that the proposed reforms have on Malaysia’s economy and financial system. This will allow us to develop implementation strategies for Malaysia after taking into account specific characteristics of the domestic financial system, including compensating tools and arrangements within the financial system that mitigate risks to financial stability. An important point to consider is that, the implementation process does not result in any unintended consequences. This is where engagement with the banking industry is of utmost importance. We used inputs from the industry and share the inputs at regional and international-level regulatory fora, thus providing an emerging market perspective to the recommended proposals. Malaysian financial reform, regulatory framework and conduct of supervisors Some key regulatory initiatives by Bank Negara Malaysia to further enhance its prudential regulatory framework and conduct of supervision moving forward.   First, to strengthen financial sector legislation through the modernisation and consolidation of existing regulatory/oversight laws under Bank Negara Malaysia’s purview. The enhanced legislation ensures that Bank Negara Malaysia is entrusted with the necessary mandate and power to maintain financial stability and to conduct effective supervision of financial institutions.