This, together with new regulation, resulted in a healthier financial system. However, an important cost of this intervention is that the balance sheet of the Central Bank of Chile was severely stressed, leading us to operate with negative capital until today. This negative capital is also a consequence of the Central Bank’s balance sheet composition, with international reserves in foreign currency earning a much lower return than the interest we pay on our domestic currency liabilities. In addition, an appreciation of our currency makes our capital more negative, as we mark to market our international reserves. The lesson from our country’s experience in this regard is that we have been quite able to operate with negative capital for the last several years, maintaining inflation under control and preserving the working of the financial system. Thus, while operating with negative capital is far from ideal, at the levels at which we have been operating, it is not cause for undue alarm. It is possible to conduct monetary policy under these conditions, especially when accompanied by an environment of good institutions and fiscal strength. Other well respected central banks have been operating under similar conditions. I cannot finish this presentation without thanking Sofia Bauducco, Lawrence Christiano, and Claudio Raddatz for putting together the program of what promises to be an exciting conference, and all of you for coming to participate and share in the discussion. Thank you. References Céspedes, L., Javier García-Cicco and Diego Saravia. 2012. “Monetary Policy Responses to the Global Financial Crisis: The Chilean Experience”. Mimeo.

Whatever the institutional setting for pursuing financial stability, it is important that it guarantees that the systemic aspects of financial decisions are properly taken into consideration, that the institutions involved have the necessary tools to prevent the formation of excessive risks in the financial system and quickly act when they materialize, and that it ensures that these tools are used with a unified view of the micro and macro aspects of financial regulation. Whether this is achieved by having a single entity in charge of regulation or by having instances that facilitate the coordination between the different entities in charge of it may be of second order importance if such coordination works well. In Chile, the Central Bank is expected to act as a lender of last resort to commercial banks facing liquidity problems. We are also in charge of some aspects of financial regulation such as retail payments; bank liquidity and market risk regulation, aggregate limits for pension funds, and others.1 Furthermore, preserving an appropriate functioning of the payment system is a goal established in our charter that is clearly related to the stability of the financial sector. So, we naturally care about financial stability, and accordingly we monitor systemic aspects of the functioning of all participants in the financial sector, conduct regular surveys of market participants, run an annual survey of the financial position of households, and produce a twice-yearly financial stability report that is widely read by other regulators and market participants, among other activities.