They have imposed rigidities and inefficiencies in the setting of deposit rates and have inhibited the development of new products on the liabilities side of the balance sheet. The removal of long-standing controls is not however an easy process, and may bring with it certain risks and drawbacks. From the banks’ point of view, the obvious problem is that they may have to pay higher interest rates, or interest for the first time, on the previously regulated deposits. The effect on margins will be exacerbated if deregulation leads to a price war with banks aggressively bidding for deposits. At this point, the banking regulator may also become concerned if it appears that the banks are neglecting the management of their interest rate risk and liquidity risk. This is obviously something that is a potential concern with the impending deregulation. But the banks have had plenty of time to prepare. Moreover, the current excess liquidity in the system means that the incentive to bid too aggressively for new deposits should be reduced. Having said that, some banks will no doubt see deregulation as an opportunity to expand their customer base, and will price their deposits with this objective in mind. This brings me on to the impact of the deregulation for consumers. There has perhaps been too much of a tendency in some quarters to see deregulation as something that would bring benefits for all. This was not the view of the HKMA.
Claudio Borio will explore the operational aspects and the precautions we must take regarding the methodologies we use to measure systemic risk. Dale Gray will handle the third presentation, integrating the idea of financial risk – by using options – with macroeconomic models focusing on monetary policy analysis, then applying the tools to the particular case of Chile based on his joint research with Leonardo Luna and Jorge Restrepo. Johan Molin will share with us the experience of the Sveriges Riksbank, which has led financial stability analysis since the problems it endured in the early 1990s. This afternoon, Francis Diebold will analyze, for the financial markets of the United States and four Latin American economies, stock returns and volatilities to look for evidence of contagion and its characteristics. Charles Goodhart, Dimitrios Tsomocos and Alexandros Vardoulakis will present us the study of a heterogeneous agent model with a real-estate sector and financial fragility. Later on, Ethan Cohen-Cole and Enrique Martínez-García will present their research on the interaction of financial intermediation and banking system regulations and its effect on the optimal monetary policy response. Tomorrow will begin with the presentation of Jaime Ruiz Tagle and Marcelo Fuenzalida, who will examine, for the case of Chile, the systemic risk of household debt. Miguel Segoviano will follow, with a review of systemic risk and banking stability from a macroeconomic perspective. Then comes a presentation by Jaime Caruana, who will draw some lessons from the recent crisis and the international financial integration.