Nout Wellink: Lessons to be learned from the crisis
Introduction by Dr Nout Wellink, President of the Netherlands Bank and Chairman of the
Basel Committee on Banking Supervision, at the press conference on the Bank's Annual
Report 2009, Amsterdam, 25 March 2010.
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A few words by way of introduction. We are facing extraordinary challenges and painful
adjustments. Moreover, many lessons can be drawn from the crisis: by bank managements,
regulators, supervisors, but also by customers of financial institutions.
By pursuing an extremely expansionary monetary and fiscal policy, monetary authorities and
governments have prevented the world economy from moving into a downward spiral. But
the remedy also carries risks. To ward off a future wave of inflation, central banks need to
return to more normal monetary conditions. Furthermore, in a great many countries, the huge
budget deficits run up must be resolutely scaled back to avoid generating such a strong
upward pressure on inflation rates as to stunt economic recovery. Decisive and rapid
scalingback of budget deficits is also essential to avert an explosion in governments' debt positions.
Monetary authorities worldwide have taken the first steps towards normalising monetary
conditions. So has the ECB.
The restoration of confidence is key to economic recovery. A government that convincingly
tackles its budgetary problems is an overriding factor in rebuilding confidence. A recent DNB
survey shows that Dutch citizens acknowledge this necessity. The European agreement to
narrow the deficit back to below 3% of GDP by 2013 enjoys broad support. But that alone is
not enough. In addition, the Netherlands should at least aim to bring the budget close to
balance by the end of the new cabinet period. Also, the rules under the Stability and Growth
Pact must be tightened. The experiences with the Greek fiscal deficit have made this
painfully clear.
The badly-hit financial sector faces a fundamental adjustment over the next few years. It is in
everyone's interest that the sector emerges stronger from this process. The timing and
method of the government's retreat from the banking and insurance world is crucial. But it is
equally important that the sector regains the confidence of society. Adjustments in the
pension system are needed too. The more difficult it becomes to increase contributions, the
more uncertain the pension results and the greater the incentive to lower the pension target.
Raising the retirement age would significantly advance the sustainability of the system. The
delay arisen is therefore regrettable.
Financial stability hinges on international agreements and coordination. Major progress has
been realised both globally and within Europe. Nonetheless, plenty of room for improvement
remains. Authorities need wider powers to acquire or relaunch flailing institutions.
Supervision should be tightened too, to ensure that a closer watch is kept on the strategy
and corporate culture of supervised institutions, but also that more account is taken of the
macro-environment in which financial institutions operate.
Let me conclude. People are understandably disappointed that, nationally and internationally,
the supervising central banks were unable to protect financial institutions from the storm in
the financial markets that blew up in August 2007. The recognition that the world is less
formable than commonly thought, and that supervision can provide no guarantee that a bank
will never fail, cannot allay this disappointment; nor can the notion that we were not dealing
with a typically Dutch phenomenon, but that there were banks all over the world that
collapsed in the wake of the credit crisis. Our response at DNB can only be that we will in
future intensify our efforts to prevent misfortunes in the financial sector. And that, along with
our colleagues in other countries, we will to this end do all that is humanly possible to draw
every last lesson from the credit crisis.