As the scale of the Bank’s balance sheet persisted however, it became increasingly clear that we needed to do more to bring our risk framework up to best practice. That was for three main reasons, each linked to the drivers I listed a moment ago. First, the increasing complexity of the Bank’s operations meant that we needed more effective ways to measure the risks we were taking, add them up across the different specific operations, and evaluate them against an explicit statement of the Bank’s risk tolerance. Second, the increasingly contingent nature of our risks meant we needed much better forward-looking tools for evaluating how those risks might crystallise in different scenarios, and ensuring we had sufficient resources to respond. And, third, the need to hold ourselves accountable, identify potential blindspots and safeguard against groupthink in our internal work, required more effective internal challenge and reporting mechanisms. In the summer of 2015, we therefore set up a brand new second line financial risk challenge function, staffed using some of our risk experts who previously helped the PRA to challenge commercial banks: bringing the ‘Golden Rule’ to life. We developed a framework of risk tolerance, measurement, assessment, reporting and challenge tools across the full range of credit, market, counterparty and liquidity risks facing the Bank, basing 6  More details on these functions are available in the Bank’s annual report on the Sterling Monetary Framework, available at http://www.bankofengland.co.uk/markets/Documents/smf/annualreport16.pdf. 7  All speeches are available online at www.bankofengland.co.uk/speeches  7  them where possible on industry best practice.

The rising expenditures, especially the investment spending increase the demand for machinery and equipment; and this demand can be met by imports due to the structural peculiarities of the Turkish economy. This process leads to the enlargement of the difference between the domestic savings and investments, which is an indicator of the current account deficit and causes the need for foreign resources to arise. With the help of the macroeconomic stability and the inflow of foreign capital, Turkish currency is appreciated and the process is reiterated giving way to an increase in the current account deficit in the environments where this resource can be provided and foreign borrowing becomes an option. A similar process was experienced due to the improvements recorded in the macroeconomic stability in the last five years and remarkable increases were observed in the current account deficit owing to the effect of high speed of growth. The current account deficit reached 34.4 billion USD in October per annum and the ratio of the current account deficit to national income in the third quarter of 2006 became 8.5 percent. However, the reasons besides the financing method should be examined in order to determine the extent of the risk that the current account deficit poses with regard to the macroeconomic balances. Current account deficit today basically originates from the faster increase of investments in comparison with the savings. Additionally, high increases observed in energy prices and especially crude oil prices influenced the increase in current account deficit in a vast amount.