juyeol lee : opening address - 2018 bank of korea international conference speech by mr juyeol lee, governor of the bank of korea, at the 2018 bank of korea international conference, seoul, 4 june 2018. * * * ladies and gentlemen, it is a pleasure for me to bid a warm welcome to you all, to the 2018 bank of korea international conference. i would like to express my sincerest gratitude to professor robert hall, of stanford university, and masaaki shirakawa, former governor of the bank of japan, who will deliver keynote speeches this morning, and to all of our distinguished moderators, speakers and discussants. let me also say how deeply i appreciate the invaluable contributions of professor thomas sargent to this conference, all the way from the planning stage. this year marks a decade since the global financial crisis upon the failure of lehman brothers. the global economy suffered the worst crisis since the great depression of the 1930s, and was long unable to recover from the recession that followed. fortunately, the global economy is now reemerging from the aftermaths of the crisis : growth has gained momentum, and the markets have stabilized. this is a result of many countries ’ work in cooperation to make their financial systems more stable. it is also due to their unprecedentedly bold and active monetary policies to support the recovery. central banks are now working to normalize the post - crisis policies. the environment for monetary policy has also changed significantly from the one prior to the crisis. in this differing environment, therefore, we have inevitably come to a position to consider how to perform our existing roles, as well as whether there are any new roles demanded to us. let me start by talking about some of these changes in the monetary policy environment facing many central banks today, and about the policy concerns arising from them. first are the concerns about the changing slope of the phillips curve. prior to the crisis, a fall in unemployment during recovery tended to result in a rise in inflation : that is, the phillips curve used to slope downward in the short - run. however, we are now having doubts about this relationship, hence are facing difficulties in deciding the policy. secondly, there are concerns that the neutral rate of interest － an important guiding measure for policy stance － may have fallen significantly. a lower neutral interest rate means that we have smaller room for policy rate cuts in face of the economic downturn. it makes the interest rate more likely to reach its lower bound, making

bank supervision in particular and financial supervision in general is still in its early evolutionary stage. with the fast changes in financial markets and information technology, the methods of ensuring the safety of banks will also need to change. already, the rules relating to bank operations are changing in many parts of the world. this means that the ways banks are supervised also need to be changed. the responses to these rapid changes may be slow, but there is concerted and dynamic effort by the international supervisory authorities to ensure the safety of banks. thus, banking supervision is conducted in the interest of everyone because the cost of a banking crisis can be enormous. when banks fail, we all fail. and certainly, the cost of a banking crisis will be unbearable especially for our relatively small economies in the pacific region. i note that you have a full agenda ahead of you. at the same time, i have no doubt that the choice of topics is to provide discussions, which should add value to your work not only in your own countries but also for the pacific region. the case study that will provide the experience of palau regarding the failure of one of its biggest bank, will not only remind us of the reality and the crucial role of bank supervisors, but it should bring us together to learn from it and be better prepared for the possibility of such crisis occurring in our own respective countries. i also note with interest that you will be covering the basel revised core principles which, as i mentioned earlier, reflect the ever changing environment in which banks operate, that international standards continue to change as the environment of risks also changes. and as part of the global financial system, we all need, to some extent, to adapt to such changes. although some of these changes may not directly affect us due to our narrow market base, others can impact on our financial system indirectly. one of these changes would be the basel ii new capital adequacy framework that has already been advanced for some years for adoption. from experience, the new capital accord will have significant impact on our limited resources and our capacity to administer and properly implement. in this connection, i am pleased to acknowledge the presence of resource experts, ms elizabeth roberts, director of the financial stability institute ( fsi ) at the bank for international settlements, basel ; messrs graham johnson and chris gaskell from the australian prudential regulatory authority ( apra ) ; mr kim norris, director, international advisory group, osfi, canada ; and experts from the ifc. i am