stage, i would like to say a few words about reporting and monitoring which are important steps to complete the risk management process. reporting and monitoring is really important to check the system ’ s efficiency. because of this, the risk management function has to have an independent reporting line to provide assurance that the institution is assessing its risks effectively, and is complying with its own risk management standards. with this functionality, reporting is the key component of any risk process, because it is basically the window into the risk management results and the means of communicating risks the institution is exposed to. therefore, data collection and processing need to be highly efficient so that accurate risk results are available in time and within the necessary level of confidentiality. at the central bank of turkey, we established a risk management division about two years ago. the need for such a division came as a result of multiple factors. these factors can be grouped into two as external and internal. the external ones as i have just mentioned in the first part of my speech are rising volatilities in financial markets, rapid developments in information technology, huge increase in trading activity and development of new financial instruments along with the globalization of financial markets. the internal factors are accumulation of net reserves starting from 1997 and the increased responsibility of our bank in terms of its leading role in the turkish financial markets. as our work on risk management has progressed during the establishment process, we have seen that our reserve management needed to be restructured to have an efficient risk management. within this context, although we did not change our primary objectives of having enough liquidity and preserving safety, we decided to consider the return factor also. therefore, we separated our reserves into different tranches serving different purposes, one for operational, one for liquidity and one for investment as in the case of most central banks changing their approach to reserve management. within this framework, we developed a performance benchmark for our reserves to evaluate our performance on a risk - adjusted basis. the benchmark reflecting the neutral position has been constructed in line with the objectives, the asset - liability structure and the liquidity needs of the bank for a one - year period. and it is going to be reconsidered periodically. the risk management division in the central bank of turkey is in the process of establishing a system to carry out risk analysis and to feed the results to the appropriate units. for the last year or so, duration and value at risk ( var ) figures reflecting interest rate and currency risks of the fx

reserves, and liquidity indicators such as current ratio ( percentage of liquid assets in total of liabilities ) are being observed. however, these reports are not yet part of a comprehensive risk measurement and control system. although they give an idea of the general level of market and liquidity risk levels, the actual risk exposure will be clearly seen only after the reserves portfolio is restructured and the benchmarks are included in these reports. the risk management process related to market risk that we plan includes daily marking to market of benchmark portfolios ; monitoring risk limits determined in terms of currency and duration limits ; daily measurement of actual portfolio ’ s var figures for currency and interest rate exposure ; monitoring liquidity ratios and reporting these figures to the top management weekly including stress testing report. there is no specified global risk tolerance limit but our institutional objectives and constraints are reflected in portfolio benchmarks. in terms of performance evaluation comparison of actual and benchmark portfolios returns are going to be monitored daily and reported to the top management periodically. for credit risk management side, a transaction limit is assigned to each counterparty, covering all types of credit risks and market risks. the limits are marked to market daily and reflect the amount of exposure that the bank is willing to take with each counterparty. the credit limits are set by employing an internal scoring model that incorporates the counterparty ’ s external credit ratings, financial information, and some other qualitative information such as the quality of relationship with our bank and the support status, ie the possibility of getting help from the government in case of financial difficulty. the credit rating of the country in which the bank operates is also considered. reports about limit monitoring are produced regularly. i would like to conclude my remarks by underlining once again how important it is to have an efficient risk management to protect our reserves from financial instabilities all over the world. we need to watch the rapid changes in reserve management in terms of technological developments and in terms of economic conditions very closely and adapt our institutions to these changes right away.