“Irreducible uncertainty” and “multiple equilibria” are occupational hazards; so if you must predict the future, you are tempted to hedge heavily and must modify constantly. But in two areas I’m confident: the Three Lies of John Harvard will continue to be revealed for years to come, and with time, the Three Lies of Finance will come to enjoy widespread credulity again. To resist their siren calls, policymakers and market participants must bind ourselves to the mast. That means building institutional structures that make it harder to act on the lies. Over the past seven years great strides have been made. Take “this time is different”. To guard against future complacency, policy frameworks have been substantially overhauled. The Bank of England has been given formal responsibility to maintain financial stability and has considerable powers to promote it. In anticipation of problems, we have increased bank capital and tightened mortgage standards. We are using our monetary policy and macroprudential policy tools in concert, so that a low for long interest rate environment can promote both price and financial stability. Moreover, when next time proves no different, the financial intermediaries at the core of the system will be on a substantially stronger footing. Their capital requirements have already increased ten-fold and their liquid assets are up fourfold. Their trading assets are down by a third and intra-bank exposures by two-thirds. Though we cannot hope to eliminate systemic risk altogether, reform is ending Too Big To Fail for individual institutions.
International Fund for Agricultural Development Mission •  An International Fund for Agricultural Development (IFAD) Mission was in the country to solicit comments on the Rural Finance Programme Inception Report of November 2003 on the development of rural finance. The major findings were that the Inception Report provided the basis for the provision of rural finance, however, it was noted that the report was limited in scope and was too focused on creating an enabling environment for the provision of rural finance. In addition, the report lacked concrete initiatives for rural finance. In view of this, the Mission proposed the following interventions: •  Support of community based financial institutions;  •  Rural banking;  BIS Review 27/2004  5  •  •  Credit facility for contract farming operations;  •  Innovation and outreach facility; and  •  Policy, legislative and management support. As a way forward, the Mission agreed to complete a draft formulation report by end-April 2004, hold a stakeholders’ workshop by end-May 2004 and finalise the formulation report by end-June 2004. The programme appraisal would be conducted by end-September 2004. AFRACA Workshop •  A workshop was held in South Africa under the auspices of AFRACA. A number of issues came up but a particular one we would like to encourage in our market is the linked banking. This involves commercial banks entering into arrangements with other institutions, such as, microfinance institutions to extend some form of banking services even to outlying areas.