– are not easily acknowledged. even if it were possible to identify such risks, it would have been extremely difficult to take the necessary corrective actions, either at the micro level ( strengthening risk management ) or at the macro level ( tightening monetary policy ). even if such risks are initially contained through appropriate corrective measures, market participants ’ risk appetite may be so strong as to eventually render those corrective measures ineffective, and lead to a bubble. there is no panacea which quickly dissipates macroeconomic risks. nevertheless, it is extremely important for central banks to understand the risk factors and consciously analyze what could happen if there are significant changes in those risk factors. as a result of the most recent financial crisis, it became widely recognized that private financial institutions perform stress tests to identify vulnerabilities in their own portfolios. stress tests may seem to be technical, but they are not. they are actually fundamentally judgmental processes for the management of financial institutions where various scenarios are employed to identify risks that endanger the existence of each institution. likewise, it has become apparent that central banks should also adopt a similar approach – in effect stress testing at the macro level. by this, i am not arguing that central banks can always make the right judgment concerning risks to the macroeconomy. nevertheless, i can stress that it is the raison d ’ etre for central banks to identify risks that would endanger the policy objectives that are conferred upon them, namely the stability of the macroeconomy ( sustainable growth under price stability ) and the financial system. i should say, therefore, that in this globalizing world, it is becoming ever more important for central banks to make joint efforts to understand the risks in the global financial markets. policy recommendations for a more robust international financial system secondly, even if central banks could understand the conditions of the international financial system in extreme detail, they would probably not be able to prevent every financial crisis. this means that, central banks should contribute to the strengthening of the international financial system – building a system that could withstand crises and stress that are facts of life – through appropriate policy recommendations. i have used the word policy recommendations, because central banks do not usually have direct authority to make rules or supervise the international financial markets or their participants. for example, in the recent debate over how to deal with institutional investors including hedge funds, most central banks do not have any rule - making or supervisory authority over them. in such cases, the central banks

##ness of institutions. in the broader sense, we could conclude that strengthening market discipline within a clear prudential framework can help achieve a better balance between financial system stability and economic efficiency. in that sense, as the central bank, we are very well aware of our responsibility in implementing sound and coherent policies and delivering these policies and policy related messages to the markets within the context of maximum transparency and timeliness. all these components contribute to financial security and in turn enhance the financial stability in the system, accommodating policy makers ’ further decisions. actually, financial security and stability are so much interrelated that one could easily argue that the stability is also a prerequisite for the security in the system or vice - versa. lastly, financial security and thus, stability contributes to the health of the financial systems, efficient allocation of resources and effective management and distribution of risks in the economy. maintaining and safeguarding financial stability is a must for the authorities of every country not only to have a sound national financial system but also to contribute to the overall soundness of the world financial markets. policy coordination between institutions on international and national levels will certainly be the most important aspect of this dynamic process. thank you for your attention.