Hence, real sector agents, particularly firms operating in ailing sectors of the economy, are facing surmounting short-term financing difficulties and have lost sight of their future objectives. The process of restructuring in these firms has to find ways for their business to change and become efficient, in order to survive and restart growth. Finance and knowhow is particularly important during such restructuring phase. What role has the financial system in this process? We have to be clear on two issues: (1) we have constructed a financial system and pursued a financial integration strategy based on banks. In fact, they comprise more than 90% of the financial system throughout the region. We think this model is successful and with some minor revisions should serve our economies  BIS central bankers’ speeches  3  in the future. For one, foreign banks bring expertise and mostly stability to the financial system. But, recent experience has softened this argument. (2) Banks should be the main vehicle of financial inflow. As converging economies SEE is expected to run current account deficits. As such, it is a capital hungry region which international banks should intermediate. A new business model relying purely on domestically generated deposits is a wrong answer to the previous extreme of huge capital inflows. A more happy medium should be sought, one based on careful and sustainable inflow of funds. How is the Single Supervisory Mechanism going to affect the work of the central banks in the region?
While the mandate on macro-prudential policy and its tools must be clear, one has to recognize that it can have wider effects in financial system and the real economy. For this reason, discussions on macro-prudential policy and measures must involve other authorities, including the fiscal one. Many countries have now established an inter-institutional entity with soft or hard powers in designing and implementing macro-prudential policy to mitigate systemic risk. The role of the central bank in these inter-institutional entities will reflect their legislation and tradition, and independence objective. Although central banks may not always chair such entities, central banks play a critical role in underpinning their functioning given the information and expertise they provide. How have such policies developed in the South Eastern Europe (SEE) region? In spite of solid growth in the run up to it, the global crisis found SEE in a vulnerable position. To a large extent, its growth model was based on encouraging domestic absorption which in turn was partly financed through external borrowing. Financial inflows were channeled in SEE economies largely through EU bank subsidiaries. In SEE, they encouraged investment in real estate and services sectors and were reflected in large current account deficits. External competitiveness and structural reforms slipped gradually through the policymaker’s agenda, while fiscal positions were allowed to deteriorate and financial safety nets were weak. 2  BIS central bankers’ speeches  As a result, when the crisis hit SEE faced both a structural and a cyclical problem.