Durmuş Yilmaz: Financial security and stability Speech by Mr Durmuş Yilmaz, Governor of the Central Bank of the Republic of Turkey, at the forum “Measuring and Fostering the Progress of Societies: The OECD World Forum on Statistics, Knowledge and Policy”, Istanbul, 28 June 2007. *  *  *  Dear guests, I would first like to welcome you all to Istanbul, the city where the two continents meet. And today it is so delightful to see that it is a meeting point for high level delegates from all the continents. In that regard, it is a great pleasure for me to be given the opportunity to share my views on financial stability and security with such a distinguished audience. Today, I would like to begin my speech by underlining the importance of financial stability, why and how we should keep an eye on the stability of the financial system, including the Turkish perspective. Finally, I will try to emphasize the interrelatedness between financial security and stability. Importance of financial stability… As a result of the liberalization and deregulation processes, financial markets became more integrated and underwent radical transformation, starting, in fact, with developed countries in the late 70’s and spreading to developing countries in the 80’s and 90’s. At the same period, capital movements were seen to have accelerated and reached to high levels. This, in turn, led to financial innovation and heavy use of sophisticated instruments.
In this regard, every central bank all around the world is concentrating on developing new tools and stress tests for assessing financial stability. They are reorganizing themselves in order to directly and effectively monitor financial stability and to develop new analysis techniques regardless of whether a central bank is also the supervisory authority or not. Financial stability from the Turkish perspective… If we consider the last two decades of the Turkish economy, we can say that Turkey learned its lesson very well by actually going through several crises and economic downturns. Thus, we now are aware of how important it is to have a sound financial system, which is resilient to potential shocks. The distortions in the banking sector and weak institutional structure of the financial system led to important systemic risks in the Turkish economy making it impossible for the economy to survive without financial sector reforms taking place. Therefore, the restructuring program for the financial sector was launched with the goal of eliminating the distortions in the financial sector, improving its intermediary function and thus enhancing its competitiveness by international standards. Banking Regulation and Supervision Agency has become operational as a separate body to improve the banking supervision. The Banks Act was amended to bring the supervision standards in line with the EU directives and international best practices. Moreover, the Central Bank Law has been amended and instrumental independence of the Central Bank was provided and the primary goal of the Bank was determined to be maintaining the price stability.