Efficiency in individual financial institutions As regards individual efficiency, deposits institutions have the capacity to pursue selection processes among potential borrowers and, at the same time, on the basis of the relative risk, to set different prices. Moreover, they undertake monitoring, seeking to minimise the risk of borrowers not meeting their obligations. In sum, deposit institutions help reduce both adverse selection and moral hazard problems, while their ability to transform maturities allows them to provide liquidity. The enabling mechanism for the proper functioning of this system is depositors’ confidence in deposit institutions. Efficiency in savings banks Among overall deposit institutions, savings banks undoubtedly play a significant role, contributing as they do to the distribution of market share among a bigger number of institutions, thereby fostering  2  BIS Review 31/2003  competition. Likewise, in a sector whose cornerstone is depositors’ confidence, properly run savings banks contribute to reinforcing the stability of the financial system. Savings banks are an old and peculiar form of financial institutions, and display a set of particularities relating both to the significant social content of their action and to their strong regional roots. I shall address these two aspects. First, savings banks have, since the outset, been characterised by their contribution to preventing financial exclusion. That is to say, central to their objectives is a concern to ensure that the more disadvantaged segments of the population may have access to financial services.
The first check stems from public supervisory powers: a characteristic common to all financial systems is the existence of prudential supervision. The second stems from minor shareholders and bank creditors (either holders of ordinary or subordinated debt, or mere depositors), who exert scrutiny in what we know as market discipline. I am sure that these arrangements sound familiar to you: they are the three pillars of the New Capital Accord, or Basel II. But the great worth of Basel II is precisely the acknowledgement that these three levels are part of the structure which, since the very inception of financial systems, has promoted sound banking systems. The three Pillars reflect well-known aspects of the workings of financial and banking systems over many years. And there lies the merit of Basel II. It has been able to identify these three elements and  4  BIS Review 31/2003  to integrate them so as to achieve regulation which is more closely aligned to the management of banks and which, therefore, is more efficient. Let me conclude my remarks by raising the issue of corporate governance and transparency in deposit institutions, including savings banks. One could argue against paying much attention to corporate governance in savings banks, based on the lack of a shareholder structure. I do not agree. First, we should never forget that the issue of corporate governance is related not just to the minority shareholder issue, but also to that of companies raising resources from capital markets.