However, while initially strong fiscal positions may have provided a sort of “spare tire”, as with any spare tire, it is risky to ride on it for too long, in part because it may be needed to deal with the next nail in the road. Public debt has already risen markedly in a number of countries, and contingent liabilities often remain significant, raising some concern about potential future debt growth. Thus, some governments now face the challenge of moving to retighten fiscal policy while preserving growth and stability and, over the longer term, gradually restoring their previously strong net debt positions. These considerations further underscore the importance of quickly completing the process of banking sector rehabilitation and of attracting new sources of capital. Such decisive action would allow the banking sector to again be an engine of growth, capable of offsetting the eventual withdrawal of fiscal stimulus. Improved transparency can help Achievement of the goals of corporate and financial restructuring, and of macroeconomic stability, are fostered by improved transparency. When authorities clearly explain the objectives or concerns that lie behind their policies, they greatly increase the likelihood that markets will move in a direction that supports, and even favorably anticipates, the authorities’ goals. Under the auspices of the IMF useful standards have been promulgated for transparency with regard to macroeconomic data, including international reserves, and for fiscal and financial policies.
Indeed, one of the main lessons of the crisis may be that those countries where central banks assume banking supervision took advantage of their ability to react quickly and flexibly to emergency situations. Obviously, for macro prudential supervision to succeed, all actors involved – regulators, central banks, national Treasuries and fiscal authorities – will have to closely work together. Amongst plans being floated or decided, it is notable that central banks have been assigned the function of systemic risk supervisor. BIS Review 85/2009  3  Conclusion Let me now conclude. All major financial crises in history have led to revisiting and redefining the role of central banks. This one is no exception. Central banking will not be the same after the crisis. It is important, however, that changes that will occur do not impact on their ability to reach their primary objective. Price stability may not be a sufficient condition for financial stability. But it is certainly a necessary one. Central banks have to enrich their role and expand their functions for the benefit of general welfare and prosperity. In that process, they will remain guardians of the integrity and stability of money, which is a cornerstone of the social contract in our democratic societies. Thank you. 4  BIS Review 85/2009