nout wellink : responding to uncertainty remarks by dr nout wellink, president of the netherlands bank and chairman of the basel committee on banking supervision, at the international conference of banking supervisors 2008, brussels, 24 september 2008. * * * introduction good morning and welcome to brussels for this fifteenth international conference of banking supervisors. i would like to begin by thanking governor guy quaden of the national bank of belgian and chairman jean - paul servais of belgium ’ s banking, finance and insurance commission for graciously hosting this conference. the organisation of this conference began shortly after the icbs in mexico ended. despite the extensive preparation of our belgian hosts, i do not think any kind of planning could have prepared us for what we are now experiencing in the financial markets. the events we have witnessed in the past two weeks are nothing short of extraordinary. some of the world ’ s largest financial institutions have declared bankruptcy, have been purchased or have been thrown a government lifeline. considerable uncertainty and market volatility persist and will likely continue for some time to come. the official sector, including the supervisory community, are working to promote a deleveraging process that limits as much as possible the spillover from the financial to the real economy. as supervisors, central bankers and policy makers – what are we to make of all of this? just as we caution bankers during the good times to prepare for the rough times that inevitably lie ahead, we too must use this opportunity to assess the lessons learned to better prepare for the future. this morning i would like to share with you some of my views on the lessons the crisis has taught us and, more importantly, how we can use this experience to better prepare for the future. clearly, we are still in the midst of this process and more lessons are likely to arise. as you know, both belgium and my home country, the netherlands, are on the shore of the north sea, which can be extremely stormy at times. in the past, people were at the mercy of these storms. for instance, in 1570 more then 20, 000 people died during one of the worst storms in history. so how did people react? they built dikes to protect against the floodwaters. despite these buffers, a bit more than 50 years ago, the netherlands as well as belgium, the uk and germany were caught again by an enormous flood, which flowed over the dikes – the buffers – that had been built up during the good years.

council of laeken indicated in december that eight to ten countries will be joining the eu as from 2004. the chances of a big bang scenario, with all accession countries except bulgaria and rumania joining at the same time, has thus gained in probability. politically, this would be the preferred route, eliminating tensions between countries joining soon or at a later stage and facilitating the ratification process of individual accession treaties. on the other hand, a big bang scenario should not conceal the persisting – and sometimes substantial – structural differences between accession countries. there is a correlation between potential problems in the economic structure and the stage of transition reached. the consequent specific policy challenges will continue to demand attention even after accession, and notably when participation in the monetary union is considered. policy challenges for accession countries on the road to convergence let me begin by pointing out that over the past ten years the countries in central and eastern europe have engaged in a highly successful catching - up exercise. painful reforms were enacted, often attended by rampant unemployment. the necessary institutions, such as central banks, were built up from scratch. at the same time, the transition process from a centrally planned to a market economy usually proved more laborious than expected. the economic downturn was such that only a few countries have managed to regain the gdp level recorded before 1990. the growth potential may exceed the average in the european union, but so far the margin has been slim. for instance, the czech central bank puts the potential growth rate of the czech economy at 2 - 3 % per annum. income differentials vis - a - vis the european union will consequently persist for some time to come. in fact the policy challenges of the accession countries lie in furthering structural reforms aimed at raising the growth potential. economically, structural and real convergence towards the eu interact. it is a lengthy process, involving such measures as introducing free enterprise and corporate governance, as well as setting up social security systems and fighting abuse and corruption. in this context, the commission recently announced an action plan intended to boost the institutional capabilities of the accession countries. looking at my own field, i see that banking supervision will need to be stepped up. in general, the financial sector is not developing in line with the economy as a whole, and plays no more than a limited role in the financing of local enterprises. the capitalisation rate of banks and share / bond markets in poland and hungary is less than a third that in the eu. financial intermediation must clearly be stimulated if