Mr Erçel talks about the Turkish banking system Speech by the Governor of the Central Bank of the Republic of Turkey, Mr Gazi Erçel, on the occasion of the American Turkish Council meeting in Ankara on 18 March 1999. First, I would like to thank the ATC arranging this gathering in Ankara. I am very pleased to be here today, and I would like to talk about the Turkish banking system. Let me begin by recalling that banks are important and serious institutions. They depend on trust. They borrow money from the public and use it. They also perform the function of intermediation of funds. For many centuries they have been institutions that contributed to economic development. There are a number of generally accepted, long-standing principles that apply to these institutions. The most important are: -  Providing effective supervision over these institutions. -  Maintaining an environment in which they can function efficiently. -  Making risk-taking measures adaptable and applicable. -  Helping to improve the culture of credit. Most of these responsibilities are assigned to public authorities, although some of them are the responsibility of the banks. During the last two decades, however, financial developments taking place all over the world have brought many changes in the practice of banking. Innovations in information technology, the liberalization process of financial markets and a rapid increase in the sheer number of financial transactions have also affected banking. Competition in banking and other sectors has increased.
3  BIS Review 20/2000  Wage formation Risks A further factor of uncertainty for assessment of inflationary pressure in the ongoing evaluation of monetary policy is wage formation. Here it concerns the risk that the wage formation processes have not yet been tested in such a strong cyclical upswing as we now seem to be in. The mode of functioning of the labour market is also important for how quickly the Swedish economy can make use of the opportunities created by technical innovations. The nominal wage increases must in the long term be kept within the scope permitted by productivity growth and the 2% inflation target. Higher wage cost increases will initially either lead to reduced profit shares for businesses or higher inflation. However, sooner or later, excessively high wage costs will lead to lower growth either because the Riksbank is obliged to counteract an increased inflationary pressure with higher interest rates or to a reduction in the willingness to invest in Sweden confronted with the prospect of reduced profit margins. This year and next year pay negotiations are to take place for 2.3 million employees and the mode of functioning of the labour market will then be seriously put to the test. The Swedish labour market has previously had a tendency to generate wage-wage spirals. It has, for instance, been difficult to change relative wages without this generating compensatory wage increases.