Jean-Claude Trichet: Worldwide tendencies in financial systems  Speech by Mr Jean-Claude Trichet, Governor of the Banque de France, at the Joint Bundesbank/BIS conference on “Recent developments in financial systems and the challenges for economic policy”, held in Frankfurt, 28-29 September 2000. *  *  *  Ladies and Gentlemen, It is a pleasure to seize the opportunity of this conference organised upon the joint initiative of the Bundesbank and the BIS to present a few considerations on worldwide trends in financial systems. It is clear that the shape and operating modes of financial systems have undergone far-reaching changes under the combined impact of the marketisation and globalisation of our economies. These developments were driven by two key factors: •  financial deregulation, reinforced in Europe by the setting up of Economic and Monetary Union, which enabled the free circulation of capital flows and the creation of competing financial sectors;  •  technical and financial innovation, which paved the way for the creation of financial markets that are deep, liquid and interconnected. Today, new trends are emerging in financial systems, and their consequences for monetary policy in particular and financial stability in general need to be examined. I shall therefore discuss the following three aspects: •  first, the trends currently shaping financial systems;  •  second, their consequences in terms of efficiency and stability;  •  third, their impact on the action of central banks and prudential authorities. 1. Financial systems are being transformed by four driving forces.

Lowering the barriers to entering the financial sector, the free circulation of information and fiercer competition have also brought financial markets closer to a situation of perfect competition, which is of benefit to all consumers. Lastly, the growth of market financing has allowed savings to be channelled directly into investment. Reducing the share of bank financing, and therefore to a certain extent that of money creation, has enabled the financing of the economy to be less inflationary. Second consequence: a new framework for conducting monetary policy Financial deregulation has contributed to change the conduct of monetary policies. More open economies and greater interdependence between financial systems has completely overhauled the context in which monetary policy is implemented. •  Financial markets can now penalise inflationary monetary policies by withdrawing capital, with a subsequent rise in long-term interest rates and/or depreciation of the exchange rate. •  At the same time, the monetary policy transmission mechanisms have become more diversified and complex. This situation is one of the reasons why there has been a substantial clarification at a European and global level of the division of labour amongst economic policies. In this context, monetary policy has been clearly assigned the objective of maintaining price stability. Today, monetary policies are conducted within a framework characterised by two main features: •  Firstly, the reducing of inflation expectations depends on compliance with a number of rules that have been clearly defined in advance.