ease banks ’ reluctance as it partially reduces the risk involved in lending. however, collateral may play a limited role in the case of small and medium size enterprises since they are less likely to possess appropriate collateral. in order to improve exchange of information on credit history of a borrower, regulators of many countries have actively involved in setting up public credit bureaus. in turkey, the central bank took the lead in setting up the risk center of turkey in 1951. the risk center has been operating within the central bank since then. this database enables to prevent extension of credit to a person or legal entity exceeding its payment capacity. applications are based on data exchange on loan limit and risk information on bank customers, protested bills information, identity information of the customers subject to non - performing consumer loan and credit card, and loan limit and risk information on customers of financial leasing companies and factoring companies. currently we are at the process of transferring the risk center unit to the banks association of turkey. a separate and private company was also set up by private banks in 1995 as credit bureau to respond to the demands of the financial community. the credit bureau promotes the exchange of information among financial institutions about the credit history of potential customers. i should also emphasize the importance of the new capital accord, the basel - ii. along with the implementation of basel - ii, the access of small and medium size enterprises to bank credit will depend heavily on their financial and organizational structures. according to the new accord, those enterprises that adhere to sound corporate governance principles will have an advantage in access to cheaper finance through banking sector. they will also have better access to finance if they improve their financial disclosure standards. hence, it is imperative for small and medium size enterprises to take the necessary steps and prepare themselves for the requirements of the basel - ii without any delay. at this point, i would like to briefly touch another obstacle that hinders access to capital : fiscal dominance. due to high level of public sector borrowing requirements in many emerging market countries, fiscal policy ultimately governs price determination in financial markets. fiscal dominance reduces the amount of loanable funds available to private sector and disrupts effective credit allocation in the economy. turkey can be seen as a case study. years of high real interest rates and budget deficits in the 1990s forced the turkish banking sector to credit rationing. banks were not able to perform their intermediary function effectively. instead, they mostly financed public sector deficits. fiscal dominance has gradually eased following the reform program enacted after

durmus yılmaz : access to finance and capital markets development speech by mr durmus yılmaz, governor of the central bank of the republic of turkey, at the xiith euro - mediterranean conference on economic transition, bruxelles, 20 february 2008. * * * ladies and gentlemen, over the last two decades, we have witnessed a dramatic shift towards internationally integrated financial markets. in today ’ s world, asset prices and domestic interest rates have become increasingly determined by international developments rather than domestic factors. a sharp expansion in the scale of capital flows is one manifestation of this integration. another indicator is the pace of financial innovation and corresponding surge in new financial instruments and markets. this rapid growth in financial markets has been accompanied by massive economic and financial deregulation, which has enabled financial institutions to move beyond national borders, making the conduct of monetary policy more complicated. in this rapidly changing financial environment, the position of a central bank in the financial system has become an important issue to address. it is generally accepted by many central bankers that the primary objective of the monetary policy should be to achieve and maintain price stability. here, what is meant by price stability is low and stable inflation. most central banks also acknowledge that they have a significant responsibility for ensuring a stable financial environment in which both financial and non - financial institutions operate. unlike the primary mandate ( price stability ), the precise meaning of the second mandate is more elusive. moreover, central banks are not usually alone in fulfilling this mandate. in many countries central banks are in close cooperation with independent regulatory agencies. these agencies have the authority of regulation, supervision and oversight of financial markets and institutions. in the context of turkish financial system, we have two such agencies : banking regulation and supervision agency and capital markets board. at this point, i should emphasize that price stability and financial stability objectives are complementary in nature. disruptions in financial markets would eventually affect the real economy through their impact on interest rates, exchange rates or asset prices. thus, it is not far fetched to regard them as two sides of the same coin. dear guests, financial stability lies at the core of a well - developed financial system. and the smooth operation of payment and settlement systems is a prerequisite for financial stability. the bank for international settlements defines the oversight of payment and settlement systems as a task left primarily to central banks with the objective of promoting the smooth functioning of payment systems and protecting the financial system from the possible “ domino effects ” which