in good faith. those repayments were funded at least partially with deposit accumulation in foreign branches. early in october, two icelandic banks received sizeable margin calls from the ecb. the ecb demanded that they be met immediately, which would have driven the banks to collapse. the news of these margin calls spread widely. for reasons that were not explained, the ecb withdrew the margin calls at the last moment, in spite of the fact that the central bank of iceland had been informed that such decisions by the ecb were irrevocable. in retrospect, perhaps the safest way to prevent the collapse of the icelandic banks would have been, at the outset, to place more stringent limits on their operations than were placed on financial institutions in other eea states ; in other words, to deny them the rights conferred by the eea agreement. had this been done, iceland would not have been a full participant in the internal market of the european union. i will leave it to others to answer the question of whether political support would have been forthcoming for the imposition of such restrictions on the banks at that time. on the other hand, in view of recent developments, it is obvious that the banks took advantage of extremely favourable conditions to expand more rapidly than was sustainable for the long term as things developed. because of their relative size, the icelandic banks were more vulnerable than many other businesses even to moderately adverse developments, not to mention the catastrophic events that have shaken the global financial environment in the past year. the question of when it would have been right to intervene – and how – is extremely difficult to answer, however. no one has perfect foresight. many lessons will doubtless be learned from the experience of the past few years, including lessons about capital and liquidity requirements, concentration of financial company ownership, financial links between owners and financial companies, and financial companies ’ ownership of other businesses, to name a few. but those lessons are outside the scope of my talk today. conditions in the global financial system are at their worst since the great depression, particularly after the collapse of lehman brothers. it is virtually an unprecedented crisis. perhaps it is possible to say after the fact that the fall of lehman sealed the fate of iceland ’ s banks. once lehman had failed, nothing could have saved them. assets had become almost impossible to sell due to the crisis of confidence and the global credit squeeze the icelandic banks faced a much harsher operating environment and could expect that strict limitations would be

much information about what went on in the policy meetings ; third, too much information can also be tricky because of the risk of misinterpretation. this is because one cannot assume that all markets are efficient in processing the same information ; fourth, in central bank operations, elements of surprise can be useful on occasion ; and fifth, central banks being what we are should reserve the right to act. this is to say central banks should always have room to act, especially in response to an unforeseen emergency situation. so, given the benefits that central banks can gain from greater transparency and the rationale for having some limits, the challenge is to find the right balance in disclosure policy that maximizes the economic benefits of transparency while, at the same time, limits the unnecessary risks and provides flexibility to act when needed. the second issue i want to speak on today is the challenge to central banks in designing disclosure policies. on this issue, i want to begin by saying there is no absolute level of appropriate transparency. this is to say appropriate level of transparency to a central bank is not firm or fixed but always changing, depending on the circumstances which include the capacities of the central bank to provide information, the demand for information from financial markets and stakeholders, and how much credibility does the central bank has. such are the forces that eventually shape the extent to which the central bank should be transparent in the eyes of the public. another point about disclosure policy is that disclosure policy cannot be separated from the central bank ’ s own communication policy. this is because data release by itself is mostly not sufficient. the central bank will need to communicate what those data mean and, on the basis of those data, what is the rationale for the central bank to pursue certain policies. in short, being transparent also means being able to explain one ’ s own decisions and actions. and the final related point about disclosure is that, despite the recent trend on transparency, with more and more central banks moving towards greater transparency, our research shows that there is still no clear convergence of the practice. central banks continue to practice things differently, although in some areas the established practices are more or less uniform. to illustrate this point, let me now turn specifically to transparency in monetary policy which is the heart of central banks ’ responsibilities and operations. in monetary policy, there are six areas where transparency is now well established and is being practiced by most central banks. these are ( 1 ) stating clearly what the objectives of monetary policy are ;