Today, we can easily say that payment and settlement system in Turkey is at par with its counterparts in developed countries promoting the efficiency and effectiveness of the financial system. Distinguished Guests, Removing market imperfections is essential for the smooth operation of financial system. In this context many central banks have been involved in addressing information problems experienced in credit markets. At this point I will draw your attention for a few minutes to the asymmetric information problem, which can lead to credit rationing. It is known that obtaining credit information to ensure sound-lending activities is a costly procedure requiring an efficient monitoring process. The lack of adequate information about a borrower’s credit solvency and the viability of a project may raise screening and monitoring costs for banks. This situation sometimes leads banks to cut credit supply or make them reluctant to supply loans. Of course, collateral based lending could ease banks’ reluctance as it partially reduces the risk involved in lending. However, collateral may play a limited role in the case of small and medium size enterprises since they are less likely to possess appropriate collateral. In order to improve exchange of information on credit history of a borrower, regulators of many countries have actively involved in setting up public credit bureaus. In Turkey, the Central Bank took the lead in setting up the Risk Center of Turkey in 1951. The Risk Center has been operating within the Central Bank since then.
Regulatory and supervisory authorities should strengthen prudential and other financial market regulations in order to deepen financial markets and improve investment climate, whereas central banks should focus more on greater currency flexibility and price stability. In conclusion, as a central banker, I would like to highlight three key messages from the thoughts I have shared with you. First, to achieve price stability, central banks need to ensure efficiency of financial infrastructure and maintain smooth operation of financial services. An efficient and effective payment and settlement system is at the core of financial infrastructure. Second, removing market imperfections is essential for the smooth operation of financial systems. Establishment of credit bureaus to improve exchange of information on credit history of economic agents and reducing fiscal dominance are important steps to ensure sound-lending activities. In this context, the role of micro finance in promoting the access of the low-income segment of the society to credit should be supported and encouraged. Third, the overall level of external financing and its composition is important for domestic access to finance. The benefits of capital inflows to economic growth would be higher with a developed financial sector. Central banks could best support this process through their contribution to macroeconomic stability. Thank you. 4  BIS Review 21/2008