This indicates that traditional criteria used in determining credit rating and credit risk level may remain inadequate for accurately reflecting actual credit risk levels of countries at the times during which country specific characteristics come to the forefront. Figure 13: Relation Between CDS Rates and Credit Ratings  270  Hungary Indonesia Russia  Change in CDS (12 Sep 08 - 13 Apr 09)  220  170  S. Korea  Mexico Poland  120 Chile Czech Rep.  S. Africa  Colombia Brazil  70 Turkey 20 0  2  4 6 S&P Credit Ratings (1=A+, 9=BB-)  8  10  Source: Bloomberg, CBT. 8  BIS Review 67/2009  Countries that experienced a decline in their risk premia enjoyed room for policy rate cuts in the period of deepening financial crisis (Figure 14). In this period, contrary to many developing countries, the foreign exchange indebtedness of households in Turkey remained at low levels. This factor, accompanied by the resilience of the financial system and the restricted deterioration in risk premia during the global financial crisis, allowed the Central Bank of the Republic of Turkey to opt for policy rate cuts of large amounts.
Considering the important informational synergies between micro-prudential supervision and systemic risk analysis, bringing micro-supervision close to, if not under the same roof as, other central bank functions seems an attractive proposition. This should contribute to better management of overall economic stability. A concern has been expressed that an expanded role by central banks in this direction could compromise their independence that is so critical in defending their primary objective of price stability. That may indeed be a risk. But precisely because central banks are generally among the most independent institutions, they can strengthen the independence of the supervisory environment. The risk of political pressure delaying a needed tightening in credit conditions via macro-prudential tools, for example, can be minimised if the central bank has a key role. In my view, this benefit, together with the benefit of informational synergies, outweigh the risks. *** I close with a very old lesson for central banks: humility. This crisis was not just a once-in-ageneration crisis. It proved to be much worse. I hope subsequent relative calm allows our 22nd century counterparts to characterise this as a once-in-a-century event. But central banks must not let their guard down. The next crisis might well challenge the limits of our knowledge in new and as yet unknown ways. References Williams, John C. (2009) “The risk of deflation”, FRB San Francisco Economic Letter, 12, 27 March. BIS central bankers’ speeches  3  4  BIS central bankers’ speeches