José De Gregorio: Workshop on financial markets and monetary policy Opening remarks by Mr José De Gregorio, Governor of the Central Bank of Chile, at the Workshop on Financial Markets and Monetary Policy, Santiago, 6 August 2010. *  *  *  On behalf of the Central Bank of Chile I would like to welcome you all to this workshop on the interactions between financial markets and monetary policy. We have put together a very interesting group of papers that are surely at the forefront of research in this area. The episodes that started to unfold during the second half of 2008 reminded us once more of the central importance of financial markets for the functioning of the economy. As the crisis progressed and policy makers tried to mount a response that could mitigate the effects on the real economy, understanding which actions would have the bigger impact at the smallest possible cost become a key priority. At the same time, gauging how the traditional policy actions would affect the economy in a scenario of deep disarray of financial markets also become an important priority in Central Banks and Treasury Departments around the world. The collection of papers that will be presented here today try to illuminate different features of the policy dilemmas I just mentioned. They are then a very welcome contribution. To some extent economists lacked a clear theoretical framework to understand the role of financial markets as both an originator and propagator of shocks when the crisis started.
On the supervision side – or better known to you as the examiners that come and pay you a visit every now and then – a new department known as the Financial Conglomerates Supervision Department has also been established to facilitate the integrated supervision of financial service groups that include both banks and insurance companies under their umbrella. The new cross-sector regulatory structure allows us to modernise the regulatory framework for both the insurance and banking sectors at a more equal pace. The increased synergies created will enable the Bank to apply the best regulatory practices in the banking sector to the insurance sector, and vice versa. Regulations in the area of market conduct, for example, are more advanced in the insurance sector than they are on the banking sector. On the other hand, the regulatory framework for risk management and capital adequacy is generally more developed on the banking side. Under the new structure, the Bank is able to leverage on the more advanced developments in either sector to enhance the regulatory framework for both sectors simultaneously if possible. This, in turn will promote a more consistent and comparable regulatory regime for the banking and insurance sectors. Substantial resources have already been allocated to this effort, particularly in the areas of corporate governance, product regulation and financial reporting which have an important bearing on banks and insurers that are within the same group.