However, it should be noted that in all those cases no central bank was pressurised to take the full responsibility and to be scapegoated, unlike the continual public attacks here against the BNB. In other countries the responsible institutions and politicians have always held the understanding that the central bank’s authority is of paramount importance for the calm of depositors and the stability of the banking system as a whole. All across the world that authority, and the independence of the central bank, are considered to be a long-term asset of the country. Consequently, central banks’ actions have not been compromised under the pressure of temporary economic or political emotions. All said so far does not mean that the BNB has no intention to draw conclusions for improving the efficiency of the banking supervision. Quite the opposite, the BNB has already undertaken serious steps in this direction. Back in the summer we publicly announced a number of measures and actions for reviewing the supervisory framework and practices. I wish to remind you that as early as in July we sent an official letter to the EBA inviting them to carry out an independent review of the quality, capacity, practices and procedures of the BNB’s Banking Supervision Department. In August we sent another letter to the International Monetary Fund (IMF) requesting them to organise a mission of the IMF and World Bank in Bulgaria under the Financial Sector Assessment Program (FSAP).
This is an important area which will provide all those of us involved in financial sector oversight with major challenges for years to come. Increasingly active players are the hedge funds, employing alternative investment techniques and attracting a multitude of investors searching for higher yields. They often operate globally on the strength of the derivatised and securitised world. There has been a dramatic growth in hedge funds: data suggest that the past eight years alone have seen the value of assets rise by nearly 450%. Many of them are unregulated in a prudential sense, and are typically characterised by large proprietary positions, sometimes with an emphasis on unconventional assets and arbitrage positions. The complex and diverse operations of hedge funds can help to arbitrage away pricing mistakes, and to integrate financial markets. But they also raise new questions for financial stability oversight. The areas we need to look at are quite wide. There is of course the opacity aspect - what are the underlying concentrations hedge funds hold? But there are also other questions. How leveraged are they? Do lenders to them understand the risks that they are taking? And what is the potential impact of confidence and liquidity if they don’t? And what would happen if the new investors in hedge funds became disillusioned by their performance. Would it trigger an exodus and cause markets to go “one way”?