ways to delink reserves creation from monetary policies and exchange rate management appear promising and, although very complicated, should be encouraged. These are extremely difficult issues. But I want to pay tribute to the leadership taken by Korea on this question during its G20 Presidency. Conclusion To conclude, I would like to outline what I see as the main lessons central banks should draw from the crisis. First, financial crises are a pervasive feature of modern capitalism. While the exact timing of a crisis is hard to predict, situations of financial fragility, when some sectors have increased their debt and leverage in parallel to asset prices, reduce the resilience of financial systems to asset price reversals. Second, timely and determined interventions of central banks can quench the thirst of financial markets for liquidity and limit the spill over of liquidity squeezes to the real economy. Central banks have demonstrated that their international cooperation could be relied upon even under extreme stress in financial markets that have become integrated at the global level. Third, central banks should both prepare to manage future financial crises and design their policies in order to minimise the risks of future financial crises. For the least, central banks should avoid that their policies stimulate potential excessive risk taking, which although benign in good times, increase the scale of insolvency in the event of an asset price reversal. This is the best way to limit the risks to price stability over the longer run. Thank you for your attention.
Any structure needs to be funded. The use of emergency support should be reduced over time. Maximise Value – The Bank of Cyprus has received substantial capital. It needs to manage its loan book, restructure loans and maximise value. This will not be best achieved through a fire sale. Support the Economy – As the largest and most important bank in the country the recovery of the Bank of Cyprus is vital to the recovery of Cyprus. The bank must continue to prudently lend to business and consumers. BIS central bankers’ speeches  1  The Cypriot economy and the Bank of Cyprus have undergone a severe shock. However, both Cyprus and the bank are resilient and can emerge strongly. It is important to recognise that substantial progress has been made. The Bank of Cyprus is now adequately capitalised and has exited resolution. New management is in place and they are working on preparing the strategy and restructuring plan. The ECB’s Governing Council has recognised the steps taken to restore confidence. Continuing the efforts to create a stronger and safer Bank of Cyprus is in all of our interests. I look forward to hearing the panellists’ views on how this can best be achieved. 2  BIS central bankers’ speeches