BIS Review 10/2004  1  The authorities responsible for the institutions and for financial stability, mainly Finansinspektionen (the Swedish Financial Supervisory Authority) and the Riksbank, had not built up sufficient competence regarding the financial risks. Nor did the legislation suffice as a basis for the authorities to limit imprudent credit-granting. The oversight of the banks and other credit-granting bodies therefore became formalistic and fragmentary. We were not always looking in the right places. In defence of the banks’ management and the authorities it can be pointed out that risk assessment was made difficult for many different reasons. Several important factors counteracted a sound financial development, such as the high inflation rate, misleading tax incentives and central government subsidies. In addition, there was a lock-in effect in that currency regulation, which was in force until 1989, had kept our capital inside Sweden and contributed to a form of hothouse effect. The banks did not take these factors into account in their risk assessment, or not to a sufficient degree. They then suffered the consequences when the government made some decisions that were desirable in themselves, but which altered conditions drastically. Inflation was pushed down, the tax system was reformed and subsidies were erased. Developments in the property market were a central component in the banking crisis, as the banks’ credit-granting meant they were highly exposed to the property sector. Property prices rose at an unreasonable rate, regardless of how one measures them. They left the basis for normal pricing, i.e.

Erdem Başçi: Recent economic and financial developments in Turkey Speech by Mr Erdem Başçi, Governor of the Central Bank of the Republic of Turkey, at the press conference for the presentation of the January 2013 Inflation Report, Ankara, 29 January 2013. *  *  *  Distinguished Guests, Welcome to the press conference held to convey the main messages of the first Inflation Report of the year. Today I will talk about recent global and domestic developments besides the CBRT’s inflation forecasts that are accordingly updated. I will now present an overview of the report, which will be published on our web-site shortly. The Report typically summarizes the economic outlook underlying monetary policy decisions, shares our evaluations on macroeconomic developments and presents our medium-term inflation forecasts which were revised in view of the developments in the last quarter, along with our monetary policy stance. In addition to the main text, the Report includes nine boxes entailing significant and up-to-date analyses on various topics. For instance, one of these boxes presents an analysis on the level of credit growth rate which will prove reasonable and healthy for Turkey in the period ahead. Moreover, there is a summary of two papers examining the effects of the CBRT’s latest policies on the expectations and volatility of the foreign exchange rate. In the Report, there are also analyses on the current account balance, global risks, accounting of inflation forecasts, tax adjustments on the tobacco products and the sensitivity of tax revenues on the economic circumstances.