Executive Summary :
Many past financial episodes have highlighted the importance of liquidity for the well-functioning of the financial system. The recent global financial crisis which was unprecedented in scale and scope is no different. A well known reason for the severity of the crisis lies in the propagation of original shock that is compounded by extreme bank funding fragility, forcing fire sales across all markets. The funding of some banks has shifted towards a greater dependence on the capital markets. These wholesale funding sources such as commercial papers, repurchase agreements, and other commercial money market instruments, as the recent financial crisis illustrates, tend to be more volatile than traditional retail deposits and may pose additional challenges to liquidity risk management which is important for the long-run viability of a bank. Read more

Executive Summary :
During the past few years, many SEACEN countries have experienced rapid increases in household debt/household credit, both in absolute terms and relative to the size of the economy and household income. In many cases, these developments reflect the SEACEN countries’ financial sector deepening and are positive for economic activities and welfare. However, the rise in household debt also comes with a downside. Excessive household indebtedness makes households vulnerable to shocks which may lead to financial instability as vividly illustrated by the recent global financial crisis. Read more

Executive Summary :
The experience from the 2007 - 2009 global financial crisis was a wake-up call for central bankers. In the past decade, central bankers around the world have become more confident that they can control economic fluctuations including inflation. Many countries have adopted inflation targeting as their monetary policy framework. The success of inflation targeting in combating inflation led central bankers to believe not only that they have conquered inflation but also that they can even flatten business cycles, ups and downs of economic activities such as consumption and investment. Inflation was well managed around what many believe as a level close to price stability, business cycles were mitigated, and a few isolated incidences of financial crises responded well to active interventions undertaken by central banks and governments. Read more

Executive Summary :
For the past few decades, the nature of links between financial conditions and the real macro economy ( the macro-financial link) has changed. The links have expanded and deepened significantly due mainly to the following two reasons. Firstly, financial liberalisation has expanded the availability of financial products and services, increasing the connection between financial markets, which in turn, has enhanced the channels through which financial conditions affect the real macro economy. Read more