By reducing reliance on retail deposits, it reduced barriers to entry. Lenders’ margins fell (Chart 16), and credit conditions in the UK mortgage market eased. Conversely, the painful reminder that undiversified funding and income sources may leave a bank unusually vulnerable will probably bring about another shock to the structure of the market. The persistent tightening in mortgage credit that that would bring was a factor in the MPC’s November projections. In the near term, the extent to which the big or more diversified banks fill the gap will depend on the extent to which they too preserve capital and liquidity in the face of the harsh environment I have described. Money, or bank intermediation So far I have focused entirely on credit. Where does this leave money (or Money), the starting point for much traditional monetary analysis? Well, much that I have said about banks – their capacity, in the short run, to lever up their balance sheets and expand credit at will; their role in providing liquidity insurance to investment vehicles and corporates – turns precisely on their liabilities being money. And for this reason, banks are after all decisively different from other intermediaries. As transactions balances and so the means of exchange in our payments system, the moneyness of bank deposits lies at the core of credit intermediation.
Your Honour, This conference follows a similar one held in Botswana hosted by the Botswana Central Bank from 5 to 6 February, 2007 and supported by the BIS Governance Forum and the IMF. It also comes shortly after our very successful conference held at this same venue in November last year on the theme, “Central Bank Independence, Does It Hurt the Treasury?” All these activities are part of the building blocks to a bigger project we have been undertaking in the SADC region aimed at developing a Model Central Bank Act. For us in Zambia, efforts at perfecting the governance as well as the operational efficiency of the financial sector are being done through the Financial Sector Development Plan (FSDP). Under the Plan we have already developed Corporate Governance Guidelines for the financial sector as a whole. Many of these have a lot of relevance to the Central Bank as well. Through the FSDP, even issues such as who should chair the Board of the Central Bank are being discussed. Lastly, let me say that we expect to learn from what other central banks have done, and what challenges they have faced in their quest for enhanced central bank governance. However, it should be noted that each country should establish a legal framework for its central bank governance, which best fits that country’s own history and institutional evolution. This should also take into account international best practice.