The significance of systems and governance principles Given the gigantic nature of the risks faced by banks and the inability to foresee the delivery of external shocks, the life of the internal auditor is made miserable today. He has to function as an effective watchdog. But, he does not possess a set of well tested paraphernalia to do this job. He may be an honest, genuine and committed worker. But, the rest in the organization may not be so to the same degree. Hence, any mishap can occur without warning or the knowledge of the internal auditor. If it so occurs, the internal auditor himself is driven to a serious quandary. The way to overcome this risk is to develop and place in place suitable and effective systems, processes and methods across the organization at all levels. The internal auditor could just monitor and ensure that the systems are genuinely and effectively followed by all. An important element which also helps him to perform his job effectively is to introduce and follow to the letter the good governance principles in the organization. These governance principles would bind all in the organization by a common code of ethics. The absence of proper governance will lead to misuse of the resources to the detriment of outside stakeholders. The internal auditor cannot keep a watchful eye on everything that happens in a bank. A good deal of discipline that should be inculcated throughout the bank comes from self-discipline and there again, through the strict adherence to governance principles.
3  BIS Review 56/1999  Monetary policy operates on the demand side of the economy, and essentially what we can hope to do – and what we are aiming to do - is to keep overall demand broadly and continuously in line with the underlying supply-side capacity of the economy to meet that demand. How close we come – on average and over time – to meeting the 2½% inflation target is in effect simply a measure of our success in achieving macro-economic stability in this wider sense. We cannot directly affect supply-side capacity – the underlying rate of growth that we can expect to sustain. But, by operating symmetrically – as we have shown that we do – we can provide an environment in which supply-side improvements (for example, more rapid productivity growth which apparently explains the stronger performance of the US economy in the past few years, but which we have yet to see in this country on anything like the same scale) have the best chance of feeding through into faster sustained output growth. And, to the extent that we are successful in maintaining macro-economic stability, that can help to improve our supply-side performance indirectly by lowering real long-term interest rates and encouraging better decision–making in the economy as a whole with less distortion from unnecessary erratic movements, particularly in nominal values. But we can only hope to maintain macro-economic stability for the economy as a whole.