Indeed, most of these reasons are due to: •  weak macroeconomic and financial policies implied;  •  inconsistencies in domestic policies;  •  increased vulnerability of national economies to external shocks;  •  higher international capital mobility (ie higher sensitivity of international capital flows among economies);  •  higher volatility of exchange rates due to integrated financial markets, which hits real sectors of economies. As countries’ economies become more vulnerable to external changes, they are exposed to shocks and crises with severe consequences both in financial and real sectors, as well as facing heavy social costs. In this context, I would like to emphasize the importance of the risk of contagion in highly integrated global financial environment. As we have all experienced, instability emerging in one country can spread almost instantly to other countries. There is no doubt that every country faces its own challenges that are directly affected by their particular economic and social conditions. Positions taken in one country are now being hedged in another and this so-called proxy hedging of country risks spreads shocks and crises across national borders. As a result of this, even a country with no direct exposure to the country in crisis could find itself in deep trouble. In fact, the most recent crises in East Asia and Russia have reminded us how rapidly and compellingly a financial crisis can erupt. At this point, I would like to briefly discuss the progress of Turkey, particularly the Turkish banking sector in the globalization process.

I, personally, consider globalization to be both a beneficial and a challenging, inevitable, irreversible process for the world economy and the international financial system. Globalization and liberalization of financial markets bring a variety of changes, presenting opportunities as well as risks both in economies and financial systems throughout the world. One fact is quite clear: the undeniable benefits of globalization are only available to the countries that best manage their economies. (1)  One obvious benefit of globalization is that active international capital flows improve the efficiency of the allocation of world financial resources. As the world market economy has become more globalized, we have witnessed rapid growth in world trade, leading to a higher standard of living during the 1980s and 1990s. In plain language, competition, productivity gains, lower trade barriers and lower cost of external financing on a worldwide basis are the key factors that have led to growth in world trade and rising standards of living. (2)  Globalization also has increased and enhanced competition worldwide. There are several factors behind this consequence. (a)  Firstly, the integration of world markets and rapid technological change led to efficiency gains and growth driven by the lower transaction and information costs. These in turn increased competition through lower costs and higher market efficiency, higher productivity, lower barriers to entry, and new investment opportunities. Geographic distance is no longer a factor that limits the provision of goods and services. Hence, competition both in the industrialized and developing countries has reached almost the same level.