William C Dudley: More lessons from the crisis Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Center for Economic Policy Studies (CEPS) Symposium, Princeton, New Jersey, 13 November 2009. *  *  *  Thank you for having me here to speak today. It is a real pleasure to have this opportunity to speak at CEPS again – this is a great forum to talk about policy issues. Tonight I want to discuss some of the challenges we face in making our financial system more robust. We have learned a great deal over the past two years about our financial system and its vulnerabilities. The task ahead is to put these lessons to good use. Our goal must be to make the financial system more resilient to shocks. If we can do that successfully, we should be able to reduce the risk of financial crises. In assessing the causes of this crisis, one clear culprit was the failure of regulators and market participants alike to fully appreciate the strength of the amplifying mechanisms that were built into our financial system. These mechanics exacerbated the boom on the way up and the bust on the way down. Only by better understanding the sources of these damaging dynamics can we construct solutions that will strengthen our financial system and make it more robust. Today, I am going to focus mainly on the extraordinary liquidity events that played out during this crisis.
In parallel, there has also been an increase in the variety of goods and services exported, with intermediate goods and services accounting for a growing proportion. Since 2007 the number of Spanish goods-exporting companies has increased by more than 40%. And this despite the difficulties the international environment has undergone and the competition from the emerging economies. Moreover, the contribution of SMEs to this process is beginning to be significant. A further reflection of the internationalisation of the Spanish economy in the past two decades has been its growing share in international direct investment flows, not only through foreign capital inflows, but also through investment by Spanish firms abroad. Spain has become a net issuer of direct investment, running counter to the historical pattern. Large Spanish companies initially directed their foreign investment towards Latin America, diversifying subsequently towards the European Union. Currently, these two areas account for 50% and 30%, respectively, of total Spanish foreign direct investment in the rest of the world. Direct investment flows into Spain, after having been interrupted at the height of the euro area financial market tensions in 2012, are regaining their pre-crisis levels. The gains in competitiveness and the reforms undertaken have no doubt increased the attractiveness of our economy to investors. The headway made in the internationalisation of the economy against a particularly difficult background underscores the competitive capacity of part of the Spanish productive system.