However, the banking system’s relative well-being does not mean that the banking sector resolution is over. Problems accumulated by banks turned out to be more significant than we expected. As I have mentioned, here belong sizeable loans to companies connected with banks’ owners. Not all of these companies are successful, and their projects remain unimplemented for years. Similar to owners, large creditors often use their funds deposited with banks to fund projects of their owners or chief executives, shifting all the risk to the banks. Complications in obtaining relevant information from a foreign jurisdiction by the supervisor allowed banks to accumulate sizeable assets abroad (loans to non-residents, large correspondent account balances with foreign banks, securities in foreign depositories, letters of credit and other transactions outside the RF jurisdiction). A detailed inspection reveals that most transactions with non-residents are of fiduciary nature, and a foreign company or bank is not the ultimate recipient of funds. As a result of such transactions, funds are ultimately used for loans to owners or fictitious increase in the bank’s capital. Currently, the supervision’s main objective is to timely reveal such fiduciary transactions which undermine financial stability of credit institutions. Today, we are completely rebuilding the whole system of bank supervision, accelerating supervisory decision-making, and, moreover, striving to enhance the proactive nature of the supervision.
2  BIS central bankers’ speeches  A special emphasis should be made on monetary policy challenges facing the central banks throughout the world. Easy monetary policies helped stabilise the situation in advanced countries, but the quantitative easing programmes were introduced as short-term interim measures allowing to gain time for structural reforms. As you know, however, nothing is more permanent than the temporary and structural reforms show little progress, while the easy monetary policy now involves more risks than benefits due to its longevity. Monetary policy in itself is not able to set the economies of advanced countries back to resilient growth, since there are structural limits and there is no room for reducing interest rates any further, i.e., they have already been negative in many countries. Nonetheless, low interest rates in advanced countries were conducive to fast accumulation of external debt in the emerging market economies subjected to capital inflow and bubble formation. On the one hand, we realise that an exit from the easy monetary policy is fraught with an about-turn in capital flows and consequently the need to tighten monetary policies in emerging market economies. This may bring down the global economy’s growth rates even further. Moreover, as a result of a quick monetary policy normalisation holders of these countries’ bonds may incur losses and financial stability risks cannot be ruled out. On the other hand, a refusal to normalise monetary policy may lead to stagflation.