Information asymmetries When talking about information in the context of the financial turmoil, a key dimension of interest regards the role of informational asymmetries in the money markets (though I will often refer to the euro money market, it goes without saying that the issue of information asymmetries and adverse selection equally applies to money markets in other currency areas). Indeed, during the current turmoil widespread uncertainty about the distribution of exposures to sub-prime losses across financial institutions has led to the inability of distinguishing sound from unsound financial institutions, almost bringing inter-bank trading to a halt in August. The disruptions to inter-bank trading were compounded by banks’ uncertainty about their own liquidity needs reflecting various factors: (1) difficulties in tapping market funding sources (particularly the US dollar-denominated asset-backed commercial paper market), (2) larger than anticipated recourse by investment funds to committed credit lines, and (3) at least for some banks, uncertainty about the possible need to take over struggling off-balance sheet conduits and structured investment funds. Although the interventions by the ECB have since had a stabilising effect on the euro money market rate at the very short maturities and, more generally, this market has recovered some of the lost ground, lack of confidence among commercial banks continues to restrict trading activity and inflate counterparty risk premia (particularly in the unsecured term money market).

Durmuş Yılmaz: Reform strategies and expectations in the new normal – a public perspective Speech by Mr Durmuş Yılmaz, Governor of the Central Bank of the Republic of Turkey, at the Active Academy 8th International Finance Summit, Istanbul, 8 December 2010. *  *  *  Distinguished participants and esteemed guests, Before starting my speech, I would like to thank the directors and staff of the Active Academy for their efforts in organizing the 8th International Finance Summit. The Turkish economy, which has achieved stronger macroeconomic fundamentals and a sound financial system thanks to steadfast implementation of structural reforms since 2001, has been one of the economies that exited the crisis very rapidly. In the upcoming period, the new economic conjuncture needs to be managed wisely in order to sustain macroeconomic stability. Therefore, today I would like to devote my speech entirely to macroeconomic stability. Distinguished participants, The recovery observed in the aftermath of the crisis continues albeit being slow and gradual. However, the downside risks pertaining to the future global growth outlook persist. Vulnerabilities continue especially in developed countries that experience serious deterioration in budget balances and an excessive rise in public debts. Perceptions are growing that the accommodative fiscal policies and expansionary monetary policies adopted by these countries fall short of achieving the desired results in unemployment and growth. Meanwhile, developing countries, which have stronger financial structures, are enjoying a faster recovery process. The decoupling observed between these two groups of countries is expected to continue in the upcoming period as well.