Moreover, these transfers have taken place, not only through OTC contracts, but also through securitised debt instruments, of various credit quality. In my view, this opacity is not conducive to long-term confidence in the strength of the industry. And, it certainly doesn’t contribute to overall systemic robustness. So this is the second area where gaining better understanding of the potential vulnerabilities before we face adverse outcomes could be of real value. Supervision and regulation Obviously, it’s pretty easy to make lists of risks and potential vulnerabilities. Central bankers are meant to be especially good at it! But I’ve already referred to the significant benefits of risk transfer. They include wider distribution of risk, and potentially at lower cost to buyers of protection from those risks. That’s got to be of real value. The question is: can these gains be achieved efficiently whilst at the same time mitigating the risks? My suggestion here relates to the environment in which the industries operate: the general infrastructure I talked about earlier. If we want to get the full benefits of risk transfer, but with the vulnerabilities contained at acceptable levels then it’s worth reflecting on the value of co-ordinating some major elements of that environment: supervision, regulation and accounting, as they relate to the worlds of banking and insurance. I can’t help feeling that a genuine effort and real engagement in this area will help develop a better understanding of where risk really resides. In turn, that would mean greater predictability, enhanced confidence and better business opportunities.
If we do the exercise of asking ourselves where would the lending rate be in a hypothetical scenario without the global financial crisis, we find that it would be between 50 bp and 350 bp below its present level, with the larger effect on the interest rates on commercial and consumer loans. In the specific case of mortgage loans, the increase in the interest rate occurred between September and December 2008 can be largely linked to the implications of the external conditions on the local perception of risk (figure 4). All the above is a clear illustration of how the severe uncertainty and high risks that were unleashed last September are affecting the domestic economy. Non-bank financing sources Notwithstanding the key role played by domestic banks in funding households and firms, especially smaller ones, for the bigger companies there are other equally important credit sources. Thus, around 45% of total corporate borrowing is non-bank, with external debt and domestic bonds at the top of the list. Therefore, it is important to understand the behavior of the interest rates on these credits before offering a global outlook of financial conditions. The Central Bank of Chile has no direct effect on external financial conditions. Like banks, Chilean firms have seen their borrowing conditions tighten under the changed state of affairs. Still, our banks and firms continue to enjoy normal access to world financial markets, owing  2  Berstein and Fuentes (2003). 3  Becerra et al. (2009).