Durmuş Yılmaz: Developments in Mediterranean countries’ banking sectors and implications for financial stability Speech by Mr Durmus Yılmaz, Governor of the Central Bank of the Republic of Turkey, at the Euro-Mediterranean High Level Meeting, Alexandria, 26 November 2008. *  *  *  Good afternoon. I would like to take this opportunity to thank the European Central Bank for their kindly invitation and the Bank of Egypt for hosting the Fifth Euro-Mediterranean High Level Meeting here in Alexandria. Since the beginning of the Barcelona process in November 1995, Turkey has been an enthusiastic partner of the Euro Mediterranean project. Throughout this process Turkey has collaborated on various macroeconomic issues and initiatives. Recent global financial developments have proved that cooperation at the regional level as well as global level has become more important than ever to overcome international financial challenges. It is our joint responsibility as respective individual countries to contribute to the stability in financial sectors and build up a better international financial system. Distinguished Guests, The worsening expectations of global growth, problems surfaced in financial institutions in developed countries, and deterioration of global credit conditions have all led to a sharp spike in risk perceptions. De-leveraging process in the developed countries has caused risk indicators of emerging markets to deteriorate significantly. For example, EMBI+ spreads have increased markedly since September reaching almost 900 basis points in late October, before declining to 700 basis points on November 25.

In addition, with the cooperation of local and international authorities an early warning system should be constructed so that the fragilities in the international financial system would be identified and necessary and sufficient measures to fix them would be taken beforehand. In this context I believe that effective and efficient risk management and re-regulation will be the cornerstones of the new global financial architecture where the financial intermediation should not let the direct relationship between lender and borrower to be cut completely under various forms of effective risk diversification and securitization. Sound domestic policies for a healthy banking sector are necessary but not sufficient for addressing contemporary challenges of the global world. In this respect, improving policy coordination at the regional and international level is a must. Only then, we would be able to attain the optimal level of international financial regulatory rules and guidelines together with adequate tools that would match the complex nature of the international financial markets. With this consensus in mind, G-20 leaders at their summit in mid November, agreed upon an important set of principles on reforming the international financial architecture. We strongly support the promotion of these principles that include strengthening transparency and accountability, enhancing sound regulation, promoting integrity in financial markets, reinforcing international cooperation and reforming international financial institutions. We must lay the foundation for reform altogether to ensure that a global crisis, such as this one, does not occur again. Thank you. 2  BIS Review 153/2008