The other path would be to expand the range of financial intermediation activity that is directly backstopped by the central bank’s lender of last resort function. This expanded range  16  Although the largest stand-alone securities firms adopted bank holding company status during the crisis, their non-depository institution arms do not have access to the discount window backstop because Section 23A of the Federal Reserve Act restricts the ability of the holding company to transfer assets from the non-depository institution to the commercial bank affiliate that has access to the discount window. 17  See Daniel K. Tarullo. 2012. “Industry Structure and Systemic Risk Regulation”. December 4. http://www.federalreserve.gov/newsevents/speech/tarullo20121204a.htm. In this speech, he explores three policy proposals: (1) breaking up large financial institutions by reinstating Glass-Steagall restrictions or by imposing other prohibitions on affiliations of commercial banks with certain business lines; (2) placing a cap on the nondeposit liabilities of financial institutions; and (3) requiring financial institutions above a specified size to hold minimum amounts of long-term debt available for conversion to equity to avoid or facilitate an orderly resolution of a troubled firm  8  BIS central bankers’ speeches  could be defined either in terms of access by the types of firms that are systemically important in market-based finance, or by types of activity or assets. It is worth pausing here to review in a little more detail the two key functions performed by a lender of last resort.

Let me follow this account of the general framework of regulation governing financial investments denominated in foreign exchange with a description of the structure, strengths and weaknesses of our economy. The basic economic features of our country are attractive. A liberal trade and exchange rate regime, a modern and competitive private sector, abundant and vigorous consumer demand, and extremely attractive investment opportunities. This rosy picture is clouded by three economic problems that can be solved by a firm commitment to macroeconomic discipline. These three problems--high and persistent inflation, high public sector deficits, and large current account imbalances--are interrelated. Persistent high inflation has been Turkey’s main economic problem for the last two decades. Its main cause lies in the sizeable public deficit. Its other causes include entrenched inflationary expectations, exchange rate movements, monetary developments, interest rates, and price increases initiated by public enterprises. Under conditions of an open capital account, large public deficits can generate imbalances in the current account. Turkey’s current account tends to be volatile. For this reason, what Turkey really needs is to accept fiscal discipline. A sustainable and consistent fiscal policy is evidently the key to solving other economic problems. Achieving fiscal discipline will require political will as well as persistence. BIS Review 42/1997  -3-  Even though we have economic problems, we unquestionably also have the ability to overcome them. Turkey needs to make use of this potential. I therefore now wish to draw your attention to the considerable strengths of our economy.