Chart: Today’s topics To shed light on these questions I will look at what actually characterises the role of banks, how competition from new participants might influence the financial system and finally the implications of the changes underway for Norges Bank’s role and responsibilities. 1/7  BIS central bankers' speeches  The role of banks in the financial system The financial system should deliver a number of very basic services. We want to be able to borrow in order to study or buy a home today, while paying out of future income. We also want to be able to borrow long-term to finance investment projects with high expected returns. In addition, we need a means of payment that provides fast, safe and reasonably priced settlement services for both domestic and cross-border transactions. The means of payment should also be a savings vehicle. A pre-condition is that we have confidence in the current and future value of money. In today’s system, banks have a key role in providing these services. They offer credit, savings products and payment services. Chart: Banks provide credit Banks are often described as agents that provide credit by taking deposits from savers and lending part of that money to borrowers. This description of banks is not entirely wrong, but overlooks an essential component of banking and a function that distinguishes banks from nonfinancial firms. Chart: Banks create money The description does not explain where the deposits originate. The deposit placed in one bank can come from another bank.
Dominant academic paradigm may restrict those who radically incorporate lessons of these days into their studies. And of course, central banks, as always, will be criticized for spoiling the party at its hottest moment by taking away the punch bowl. We should be aware that keeping the old habits will only give us a new and may be more severe crisis in the near future. Thanks to the global efforts, lessons derived from the crisis have already started to initiate dramatic changes in the global financial governance. There have been encouraging developments in recent months to design a new global financial system to prevent future crises. In the recent meeting of G-20 finance ministers and central bank governors, member  BIS Review 120/2009  1  countries confirmed their commitments to the principles of strengthening transparency and accountability, enhancing sound regulation, promoting integrity in financial markets, and reinforcing international cooperation. I believe the establishment of Financial Stability Board with increased participation of emerging countries is a critical step in achieving these objectives. In recent years, as a byproduct of market-oriented structural reforms and prudent macroeconomic policies, the share of emerging countries in world output and their role in global financial markets has significantly increased. Now, we are faced with a more diversified group of countries with different objectives and interests. Since the rise of emerging economies has dispersed economic power, decision-making process and international cooperation has become more complicated.