to some extent unavoidable in a currency union – and, as a matter of fact, in any major economy composed of structurally diverse regions. how should such differences be addressed? this is where the interplay between financial integration and monetary policy comes in. monetary policy is not well suited to cater for asymmetric shocks, which affect some countries more than others. in a monetary union, banks or other financial intermediaries may also prove unable to absorb country - specific shocks, if they are themselves overly exposed to their respective economy. they risk facing financing constraints at the same time as everyone else. in such a situation, the financial system will not avert, but rather amplify, the retrenchment in the real economy. and, if the shocks are as violent as they were, for example, during the last crisis, financial intermediaries may face threats to their own solvency, with pernicious effects on bank - based monetary policy transmission. as i mentioned earlier, for an effective transmission of monetary policy, banks need to be in a position to pass on changes in financial conditions set by the central bank, for example in money and longer - term credit markets, to households and companies. but if solvency is their chief concern, banks will retrench rather than generate new, or at least maintain existing, business. this means that the central bank ’ s efforts to stabilise the economy cannot work as effectively as they should. so not only will banks fail in their macroeconomic stabilisation efforts, they will also obstruct the efforts of monetary policy to play that role. in fact, this is what we saw during the crisis. to avoid that happening again, we need a deeply integrated financial system with well - capitalised intermediaries that are active across borders and benefit from the risk diversification options that the economic diversity of the euro area offers. sound risk diversification within the euro area financial system will make the task of monetary policy easier even when confronted with common shocks. public and private risk sharing having discussed the importance of financial integration for the transmission of monetary policy, i would now like to turn to the issue of risk sharing. there is an ongoing debate on the broader need for public risk sharing in monetary unions, and even on the need for fiscal capacity to strengthen macroeconomic stabilisation at euro area level. clearly, more private risk sharing through the financial system should not be seen as a substitute for public risk sharing, but

njuguna ndung ’ u : developments in the kenyan domestic bond market remarks by prof njuguna ndung ’ u, governor of the central bank of kenya, during the launch of the automated trading system ( ats ) for treasury bonds, nairobi stock exchange, nairobi, 7 december 2009. * * * the chairman of the nairobi stock exchange, mr. eddy njoroge, the chief executive officer, capital markets authority, mrs. stella kilonzo, the chief executive officer, nairobi stock exchange, mr. peter mwangi, the chief executive officer, central depository and settlement corporation, mrs. rose mambo, distinguished guests, ladies and gentlemen. good morning. it gives me great pleasure to be with you this morning at the official launch of he automated trading system ( ats ) for treasury bonds. this indeed is a major milestone in the development of domestic bond market. 1. market reforms the central bank of kenya and other stakeholders have so far undertaken significant reforms in the domestic bond market. these initiatives, which include the introduction of the ats, are aimed at enhancing the safety and efficiency in the processing of secondary trading of government securities as ell as other securities among other market activities. 2. the ats project the ats project was initiated by the central bank of kenya, the nairobi stock exchange and the capital markets authority. the two institutions constituted technical committee to oversee the automation of trading of treasury bonds through the nse. the main objective of this initiative was to make bonds trading secure, efficient and a vibrant market. the expected improvement in market activity will also improve market liquidity and encourage more investors to participate in the bond market. the technical committee, in consultation with key stakeholders, has developed operating rules and guidelines for the proposed automated trading of bonds through the nse ; an integrated operating system ; an interface that links the central bank ’ s cds registry and kepss ( rtgs ) payments system with the nse ’ s ats trading platform to facilitate automated trading, settlement and delivery of bonds on a delivery versus payment ( dvp ) basis. 3. main highlights of the ats the following are the main highlights of the system : i. cbk remains the registry for government of kenya securities. ii. trading of treasury bonds continues to take place at the nse, and hence does not cater for over the counter ( otc ) trading. iii. stock brokers will continue to exercise their role as agents of the investors