What made the economic context in which the NBR was operating in the run-up to the European Union exceptional? 2. How far has the NBR departed from the standard paradigm? 3. Did markets and banks react to the departure from the paradigm? 4. Was the unorthodox approach effective? Allow me to sketch the answers to these questions: 1. What made the economic context in which the NBR was operating in the runup to the European Union exceptional? First of all, the banking system was dominated by foreign-owned banks. After a string of domestic bank failures (particularly in the late nineties), the lack of domestic private capital, combined with the fragile situation of the state budget, made it compulsory to privatize the existing banks by selling them to foreign entities. As a matter of fact, the dominant view at the time was that opening the banking system to foreign capital was essential for improving efficiency and expertise, alleviating the shortage of domestic capital, and increasing competition. Against this background, by facilitating a better resource allocation, the penetration of foreign capital into the Romanian banking sector was seen as a means to promote restructuring of the loss-incurring SOEs and to stimulate convergence to the EU. Of course, such a development brought about positive effects in the economy, as it came with stronger corporate governance and modern banking practices. However, it also had the byproduct of rapidly growing forex credit, undermining the effectiveness of conventional monetary policy and giving rise to risks from the financial stability perspective.
Mugur Isărescu: Unconventional monetary policies and financial stability – implications for banks and financial markets Address by Mr Mugur Isărescu, Governor of the National Bank of Romania, at the joint CIGI (Centre for International Governance Innovation) – Oliver Wyman conference, Rome, 15 December 2015. *  *  *  The address was presented by Governor Mugur Isărescu during the panel session “Unconventional monetary policies and their impact on financial markets”, which also included the following members: • • • • • •  Domenico Lombardi, Director of the Global Economy Program, CIGI Malcolm Knight, Distinguished Fellow, CIGI (former General Manager of the BIS) Lorenzo Bini-Smaghi, Chairman, Société Générale (former Vice-President of the ECB) Lorenzo Codogno – Professor in Practice European Institute, LES Pierpaolo Benigno, Professor of Economics, LUISS University Carlotta de Franceschi, Co-Founder and President, Action Institute  Participants included, among others: • • • • • • •  Robert Ophèle, Deputy Governor, Banque de France Dimitar Bogov, Governor, National Bank of the Republic of Macedonia Korbinian Ibel, Director General, Micro-Prudential Supervision IV, ECB Margarita Delgado, Deputy Director General, SSM, DG1, ECB Matthew Elderfield, Head of Compliance, Lloyds Bank Carlo Corradini, Member of the Supervisory Board, Intesa Sanpaolo Pierre Siklos, Senior Fellow, CIGI  Ladies and Gentlemen, It is an honour for me to address the audience during this conference on unconventional monetary policies.