Besides, they establish a strong and reliable payment system and take the necessary measures in order to prevent the problems faced by any financial institution from affecting the financial system as a whole. Central banks also function as the “lender of last resort”. Evaluations made by supervisory authorities gain importance as regards the sound monitoring of financial stability by central banks and, effective corporate cooperation with these authorities becomes more critical. I am pleased to say that the cooperation between the Central Bank and Banking Regulation and Supervision Agency, the Undersecretariat of Treasury and the Capital Markets Board as supervisory authorities, is increasingly progressing. The Financial Stability Report, the first of which was published last August, analyzes macroeconomic developments with respect to their effects on sectors, presents analysis and evaluations about the banks and evaluates current and future risk factors. Distinguished Guests, We are undergoing a period where the banking sector has increased intermediary activities, which is the primary function of banks, and where mutual interaction between the sectors in the financial system gains more importance because of the risks that require close monitoring. Therefore, in this part of my speech, I would like to discuss the developments in the banking sector within the framework of macroeconomic perspective and the risks involved. Despite the fact that giant steps have been taken regarding public finance thanks to current tight fiscal policy, maintaining fiscal discipline and achieving the primary surplus target are still of great importance as regards financial stability.

It is planned to finalize the studies on the Financial Sector Assessment Program, which were started at the beginning of 2006 with the  4  BIS Review 68/2006  coordination of the Undersecretariat of the Treasury in order to contribute to the ongoing reform process of the Turkish financial sector, by the end of the year. The Financial Sector Assessment Program process in Turkey is expected to contribute to the development of the financial sector in terms of institutional infrastructure. Furthermore, the resistance of the sector will be analyzed on an international platform via stress tests to be applied to banks within the framework of the Program. Distinguished Guests, Proper and effective implementation of macroeconomic policies, in other words, the achievement of macroeconomic stability, is the sine qua non of financial stability. It is very important for the banking sector, which should be able to cope with the Basel II process in the near future, that the improvement of the infrastructure of the financial system continues and that efficient control and supervision is carried out. As firms will contribute to stable growth with the funds that they obtain from banks, the compatibility of the corporate sector with the Basel II process is of great importance as well. In this framework, determined implementation of current economic policies, increased confidence in financial markets, the establishment of risk culture and the adjustment of economic actors’ risk perceptions according to dynamic conditions will strengthen the stability in financial markets.