guy quaden : ageing and welfare systems : what have we learned? introductory speech by guy quaden, governor of the national bank of belgium, at a conference organised by ceps in the framework of the european network of economic policy research institutes ( enepri ), in brussels on 24 - 25 january 2003. * * * ladies and gentlemen, i am very pleased to welcome you all at the national bank of belgium and to open this ambitious twoday conference on population ageing. the steadily increasing life expectancy in our countries is very good news but, as you know, combined with the dramatic decline of birth rates after the baby boom in the 1950s and the 1960s it implies that populations in a large number of countries are ageing rapidly. ultimately, the elderly dependency ratio will rise gradually but substantially. to put it more clearly : our children will have to cater for a growing number of pensioners. even if ageing pressures will in most cases only culminate from the second decade of the current century onwards - when the baby boom generation starts to retire from the labour market - the economics profession has a long - standing interest in population ageing. as early as the 1980s, individual authors or international bodies singled out ageing as one of the biggest economic challenges of the future. the first task at hand for economic researchers was obviously to estimate the size of the problem : what is it that we are facing? how bad will it be? most studies initially focused on the pensions problem and the budgetary impact of ageing. two remarks in that respect. – subsequent studies revealed that, contrary to what is still often thought, pension expenditure is not the only budgetary item that will soar because of population ageing. the ageing problem is as much a health care problem, for instance, as it is a pension problem. on the other hand, one should not forget that ageing will have a beneficial effect on other spending categories like child allowances and education expenditure. hence, the net budgetary cost of ageing can be somewhat lower than the projected increase in pension and health care spending. all in all, even taking into account the large degree of uncertainty inherent in this kind of exercise, ageing will undoubtedly weigh substantially on future governments'budgets. – one should refrain, however, from simplifying a problem as complex as population ageing into a kind of bill for the governments to pay. ageing will have a substantial impact on a wide range of economic variables - without

bank uses to raise funds can matter. for instance, holders of uninsured debt ( such as large certificates of deposits or corporate debt issues ) care mostly about the risk of bankruptcy. they don ’ t benefit if the bank ’ s stock price rises when undue risk - taking pays off. consequently, they focus on what bank managers are doing to avoid default. the incentive to monitor risk - taking is particularly keen for holders of subordinated debt, as they are last in line in the event of failure. because debt holders are sensitive to changes in the probability of financial distress, risk - taking by a bank raises its cost of funding in credit markets, and that connection creates an incentive for banks to control risks. moreover, the price of a bank ’ s debt provides useful information the least - cost - resolution requirement can be waived if a determination is made that adherence to it will create a systemic risk ; however, this exception was intentionally made quite difficult to invoke. about the bank ’ s riskiness. with that information, the bank ’ s counterparties and supervisors can take steps of their own to ensure that the bank is operating safely. 3 hedge funds hedge funds provide a second illustration of how the invisible hand can be used to support regulatory objectives. their rapid growth is one of the most important developments in u. s. financial markets in the past decade or so. hedge funds vary widely in their investment strategies and in the types of risks they take. overall, however, most economists agree that the rise of hedge funds has been a positive development for investors and for financial markets. they have stimulated an extraordinary amount of financial innovation in recent years ; and, using many of these new financial tools, they have greatly enhanced the liquidity, efficiency, and risk - sharing capabilities of our financial system. regulatory oversight of hedge funds is relatively light. because hedge funds deal with highly sophisticated counterparties and investors, and because they have no claims on the federal safety net, the light regulatory touch seems largely justified. however, the growing market share of hedge funds has raised concerns about possible systemic risk. the complexity and rapid change inherent in the strategies of many funds make them relatively opaque to outsiders, and so the concern arises that the collapse of a hedge fund might come with little warning. in addition, many hedge funds are either highly leveraged or hold positions in derivatives or other assets that make their net asset positions very sensitive to changes in asset prices ( the functional equivalent of high leverage ). highly leveraged