However, the foreign exchange market has come into balance in the context of a policy mix featuring a restrictive monetary policy, with high interest rates, an insufficiently tight fiscal policy, subject to further pressures to increase public spending, concurrently with the drop in incomes, whereas pay rises have been in excess of productivity gains for a long time. This policy mix is unsustainable. One could hardly speak about long-run forex market equilibrium, even though in the nearer term, high interest rates may offset the effects of other policies. Nonetheless, it is clear that exchange rate stability in the context of worsening competitiveness of the Romanian products, following the increase in wages faster than that in productivity, leads inevitably to widening trade deficit and ultimately to exchange rate depreciation. Should this occur, I would not be surprised to hear voices blaming the central bank for this outcome, without trying to identify the actual, deep reasons behind the unfavourable developments. Therefore, both subdued inflation and exchange rate stability are strongly related to the coherence of the policy mix adopted by the authorities. In particular, the run-up to elections laid the groundwork for making empty promises and even for adopting pieces of legislation that are likely to have a significant impact on macroeconomic equilibria. In this case, the NBR’s task is to identify major risks arising from the implementation of ill-designed policies. Unfortunately, credibility is hard to gain, but easy to lose. Losing credibility can have more severe effects than, let us say, the temporary government deficit widening.

This has resulted in the intensification of our supervision on areas or businesses that are more prone to ML/TF risks, or where controls have been found to be lacking from past inspections. 17. We have organised and will organise more industry engagements to share supervisory findings on common lapses and good practices at the end of each series of inspections. This is intended to help level up controls over time. 2/5  BIS central bankers' speeches  18. Our inspections go beyond rules-based compliance. We focus on whether financial institutions demonstrate a good understanding of risks, and a good risk culture within the organisations. We much prefer that FIs adopt a proactive approach in meeting their regulatory obligations than a passive rule-based attitude. Let me elaborate on this. 19. One area relates to governance. You are all familiar with the common thinking of having three lines of defence. Recently, there are suggestions to augment this with a “four lines of defence” model for better governance in financial institutions. The first line involves frontline and management controls within business units; then compliance and risk management functions as the second line; and the audit function as the third line. A newer fourth line involves interactions of the FI with its external auditors and regulators. An FI’s senior management and board should monitor and be satisfied that these lines are effective. Senior managers should never “look the other way” on suspicious transactions, even if they involve major clients who are significant revenue sources.