In this situation, the capital controls gave monetary policy more scope to focus on the domestic economy, as is demonstrated in Figure 4, which compares developments in short-term real interest rates during and after the currency and banking crises in Korea in 1997 and Iceland in 2008. In Korea there is a clear spike in real rates at the time of the crisis, as interest rates were used to stabilise the exchange rate whereas this spike is missing in the case of Iceland. The economic programme with the IMF included a medium-term fiscal consolidation plan. Automatic stabilisers were allowed to work fully during the contraction of 2009, however, resulting in a significant public sector deficit, as can been seen from Figure 4. The fiscal consolidation that commenced in 2010 arrested the rise in the headline deficit relative to GDP and then reduced it once the economy began to recover. In international comparison, the fiscal effort was sizeable, as can be seen on Figure 5. But it did not derail the recovery that began around mid-2010 and was key to restoring confidence and paving the way for Iceland´s renewed market access. It helped that monetary policy could be relaxed over the course of 2010, as the closure of loopholes in the capital controls in late 2009 helped stabilise the exchange rate. The recession was driven partly by the unavoidable adjustment of imbalances that required a lower level of domestic demand and a shift in its composition, and partly by the negative shocks that deepened the recession further.
The second example relates to senior individuals in firms. Earlier this month we introduced the new Senior Managers Regime. The aim of this regime is to establish clear responsibilities for senior managers, including chairs of Board Committees. This is not to create new responsibilities, but rather to be clear on what those responsibilities are, and then to supervise to hold individuals to those responsibilities. In the previous regime, we had too many examples of individuals shirking their responsibilities. My strong view is that senior figures cannot delegate responsibilities. We will then direct our supervision to support this new regime operating effectively. The third example concerns the supervision of governance, executive and Board level. We are in the process of revamping our approach here, recognising that too many problems of the past have had their roots in ineffective governance. This is probably the prime area where supervision is distinct from regulation, because there is very little regulation, rightly so. Supervising governance is inherently a matter of judgement based on evidence. So, to conclude, we should devote more time to discussing the skill of supervision. It has at its heart the understanding of risk. And, we should devote more time to developing supervisors and value then for the skill that they need to do the job well. Thank you. BIS central bankers’ speeches  3