yannis stournaras : lessons from the financial crisis and challenges for the greek banking sector speech by mr yannis stournaras, governor of the bank of greece, at a lecture organized by the international center for monetary and banking studies ( icmb ), geneva, 13 november 2018. * * * ladies and gentlemen, introduction i am honoured to be here today and have the opportunity to share my thoughts on the lessons from the international financial crisis. i would also like to touch upon greece ’ s experience over the past eight years and the key challenges for achieving a successful turnaround of the greek economy in general, and the banking sector, in particular. however, before we move on, it is crucial that i stress the importance of financial stability as a necessary condition for achieving prosperity and sustainable growth, common goals for all market participants and central bankers. i shall begin this lecture by briefly commenting on the lessons from the international financial crisis and the response of monetary and supervisory authorities. i will then outline the unfolding of the greek sovereign crisis and its impact on the domestic economy and the banking sector. subsequently, i will present the authorities ’ response, before proceeding to the core of my intervention and the lessons from the greek banking crisis. lessons from the international financial crisis the recent financial crisis has been the most severe in seventy - five years. a key question, not only for all of us in this room but also for those who study it or act as policy makers, is “ will it happen again? ” my answer is that − if and when it does happen − it will be different. first, a valuable lesson is that, while things may work well if left to the invisible hand, during times of stress that hand seems to lose its grip, in the words of ahamed liaquat in his pulitzer – award “ lords of finance ”. policy makers around the world have learned their lessons from the great depression : a financial system in distress requires active central bank intervention. central banks thus acted quickly and forcefully. they developed their toolkit with a combination of more flexible, effective and innovative measures and enormous firepower. given the success of these policies, some of these instruments may be permanently included in the new standardframework, and thus equip policy makers with the tools to engage in proper and timely action. all in all, there is no strong case for a fundamental change in the monetary policy framework. central banks are expected to continue to use the asset side of their balance

and particularly china, the increase in trade surpluses and its corollary, the worsening of the us imbalance, exerts upward pressure on the currencies while swelling foreign exchange reserves increase the costs of an appreciation vis - a - vis the us dollar. does this configuration correspond to a mutually advantageous and sustainable situation? in this second session, bill white, economic adviser at the bank for international settlements, will clarify these paradoxes in the light of the work carried out by the latter organisation, which makes a vital contribution to the analysis and promotion of macro - financial stability. in the third session, which will tackle economic policy adjustment and responses to the increase in global imbalances, we will examine private and public players ’ ability to adapt to the current situation. can the behaviour of private agents, through a change in their savings or the redirection of capital flows, lead to a spontaneous decrease in global imbalances without engendering destabilising adjustments on the financial markets? more specifically, can greater foreign exchange flexibility in certain areas, and particularly the emerging economies, help to restore some balance? in europe and japan, we expect an increase in potential output following structural reforms on financial, product and labour markets. beyond the mechanical effect of a reduction in the growth differential, what would be the impact on capital flows? in the united states, bearing in mind the savings behaviour of private agents, what lever should be used in addition to the tightening of the policy mix to substantially improve the savings - investment balance? lastly, could international institutions play a bigger role in the management of global imbalances? in this third session, otmar issing, former professor at the university of wurzburg and member of the executive board of the european central bank, will explore the avenues for finding a way out of the current global imbalances notably by presenting the analyses developed by his institution in the areas of fiscal and foreign exchange policy and structural reform. the last session will focus on the consequences of these developments for international financial stability against the backdrop of the liberalisation, the increase in and redirection of capital flows. the emerging economies have on several occasions borne the brunt of erratic capital flows. the asian crisis of 1997 thus brought to light the risks associated with the accelerated liberalisation of short - term capital flows, particularly where prudential supervision structures were inadequate. what is the appropriate global financial integration policy for an emerging economy? for mature economies, the ltcm investment