According to the literature, for supervision to be considered effective it should be able to effectively develop, implement, monitor and enforce supervisory policies under normal and stressed economic conditions. BIS (2012) defines several preconditions for effective supervision in practice: 1) sound and sustainable macroeconomic policies as a core precondition for stable financial system; 2) a well established framework for financial stability policy formulation i.e. clear framework for macro prudential surveillance and financial stability policy formulation; 3) proper regulatory environment; 4) a clear framework for crisis management, recovery and resolution; 5) an appropriate level of systemic protection (or public safety net) such is a system of deposit insurance which contributes to public confidence in the system and thus limit contagion from banks in distress and 6) effective market discipline. Transparency is another factor that gains growing importance in recent years. Thus, in order to restore confidence and rebuild financial stability there was a strong push towards supervisors to increase their transparency to the markets and the public. One supporting argument for these trends is the role of transparency as prerequisite for accountability. Higher transparency enhances the legitimacy of the supervisor, also safeguarding his independence. When transparent, the supervisory actions become more predictable thus helping to shape expectations and foster linkages across institutions and markets. Finally, transparency sets the ground for careful and consistent decision-making, reducing the scope for arbitrary decisions. Empirical research (Arnone et al., 2007), finds a positive correlation between the transparency of the supervisor and the effectiveness of banking supervision.

Due to this intervention, and mostly due to prudential policies pursued by the central banks with regard to financial stability and financial supervision, the region prevented not only twin crises in our banking systems and foreign exchange markets, but also any kind of meltdown. Nonetheless, this crisis has been a wake-up call. We agreed on this in our meeting last April, in Washington, among senior policy-makers from the region and from EU and IFIs. Now that we have managed to prevent the crisis, we must start the evaluation of the collateral damage of our response to the crisis. In this respect, it is very important to asses not only the long run sustainability of our region’s equilibrium, but also the effectiveness of our short run response. It is crucial to plan and implement our future moves intelligently for its reversal in line with new normalities. While we are not out of the woods yet, it is important to make sure that the past year’s fiscal appetite that characterised our region does not become part of this new normality. Actually, we need to do some deep thinking about aspects of our policy regimes – starting with the design of monetary policies, continuing with the way they are anchored and the building of due capacities for a greater effectiveness of monetary policy in the future. That is why we agreed to put in place today’s workshop, as part of a continuing process of reflection and reform.