##ce to contain inflation ; yet the very same level of interest rate may still lead to accumulation of financial risks. moreover, during boom periods, emerging markets typically attract large capital inflows even with reasonably low level of interest rates. in such periods, the external and internal equilibrium requires different interest rates and monetary policy has to use more than one instrument. the “ tinbergen rule ” suggests that one instrument could be employed to achieve only one target, which in our case is conventionally recognized as price stability. there is clearly a need for a second set of policy tools. this second instrument, in my opinion, may be in the form of macro prudential tools that directly address financial activities. should all authority and responsibility related to financial stability be centralized and vested in central banks? on the one hand, the benefit of vesting the decision making power and responsibility under one institution, which happens to be the central bank, is clear : no coordination problem, more effective communication under one voice, and swift response to emergencies. there are also downsides to such approach. the distinction between “ goal independence ” and “ instrument independence ” lies at the foundation of what we call central bank independence today. if central banks assume all regulatory and supervisory activities regarding the financial system and becomes the only authority responsible for its oversight, the instruments needed to achieve that goal may reach to a point where the principles of democracy necessitates a much closer coordination and cooperation with the government, blurring the central bank ’ s independence. expanding the role of central banks in the economy has the potential to create a strong and out of the ordinary entity in a democracy that emphasizes accountability and the responsibility of elected officials. central banks played a vital role in maintaining financial stability in the past and they are likely to do so in the future. the optimal use of policy rates and macro - prudential tools to achieve both the price and financial stability would define the criteria for assessing the success of central banks in the post crisis era. during the crisis, new monetary tools have been explored by the central banks. now, in addition to continuing to explore such monetary policy tools, policy makers would have to elaborate on the uses of regulatory rules for limiting the risks threatening financial stability and designing the optimal institutional structure for that purpose that finds the perfect balance between the risk of losing central bank independence and the risk of creating coordination problems ( between the central bank and the regulatory and supervisory agency ). financial stability in turkey and the monetary policy in the second part

of the policy mix depends on the factors affecting price stability and financial stability. although it is too early to assess the success of these policies, initial impact so far seems promising. conclusion the recent crisis put front and center the rising economic power of emerging countries. it has also demonstrated the vulnerabilities within the global system, especially across financial markets. financial stability becomes a major concern for policy makers, which has the potential to reshape the monetary policy framework of central banks. significant steps have been undertaken, but significant progress is still needed to tackle global imbalances. that involves not only revisiting economic policies, but also economic and institutional infrastructure that shapes them. as the quest for a new global order continues both in theoretical and practical levels ; the predictability, balance and sustainability of the new global order will depend on the cooperative and coordinated efforts to establish a well - represented infrastructure. thank you for your attention. bis central bankers ’ speeches