More generally, supervision and regulation are designed to both support productive financial intermediation and limit disruption and financial stability risks.3 Today, I will talk about a simple framework for one view of policy efficiency in a world of two policy objectives – financial intermediation and financial stability. As in traditional finance theory, one can think about an “efficient policy frontier” that maps the trade-offs among these objectives. One might choose a set of policies that supports a high level of financial intermediation and also accepts a higher risk of disruption or crisis. This might be achieved, for example, with relatively light oversight or low capital requirements. Alternatively, one might choose a different set of policies, such as more intensive oversight and stringent capital requirements that likely reduces risk, but also limits intermediation. An efficient policy is one that minimizes risk for a desired level of intermediation—it is on the efficient policy frontier. This efficiency idea is distinct from the policy choice itself, as any of these policy regimes can be efficient in the sense that risk is as low as possible for a desired level of intermediation. I’ll emphasize that this framework is agnostic to the merits of one policy choice or another. That is, it is a positive framework and not a normative one, and I won’t look at this from a normative perspective. Policy preferences can vary and they are set by policymakers.
In the spirit of the MoU agreement, a primary step in our cooperation is to establish high level policy dialogue with the Bundesbank on a regular basis, the first of which will be held in 2014. This is timely, considering that not only will Turkey assume the G20 presidency in 2015 and engage in an even closer interaction with the central banks of the G20 member states, but will also help meet the recently increased need for policy dialogues over the implementation and implications of new unconventional monetary policies. In general, the CBRT places great emphasis on bilateral relations with fellow central banks, especially those of the G20 member countries. The year 2012 is a testament to our commitment, as the CBRT opened six new representative offices, which brought the total number to ten. The first-round representative offices include those in Frankfurt, NY City, London and Tokyo. The ones opened later on are in Moscow and Sydney – to strengthen relations with other G20 presidency countries; Beijing and Kuala Lumpur – to strengthen relations with the Asian countries; Paris – to strengthen relations with the OECD, and finally Washington, DC – to strengthen relations with the IMF. In her efforts to enhance regional cooperation, the CBRT laid the foundations of the dialogue among central banks that paved the way for the establishment of the Central Banks Governors’ Club of Central Asia, the Black Sea Region and the Balkan Countries.