region. besides the high foreign capital in the banking system, cross border effects have remained contained, mainly due to the simple framework of banking operations and strict banking regulations. last but not least, sound economic recovery also transmits positive spillovers to the financial sector developments. regarding the economic cycle upward movements, we should underline the strong fundamentals of the macedonian economy that have been obviously fighting off challenges from the trembling global environment as well as domestic political instability since the beginning of the previous year. the main reasons behind these economic performances were the structural changes in the economy in recent years, which supported export diversification and reduction of unemployment. improved country ’ s economic fundamentals are expected to continue providing support to the financial cycle picking up, although both domestic and external risks are still being present. regarding policy implementation, besides monetary policy measures, we have also used non - standard monetary policy measures that are still in place, and additionally in several occasions we have modified some of the prudential measures for further strengthening of financial stability. managing economic and financial cycle spillovers and putting them on the right track, go beyond monetary policy scope of operation and refer to the overall macroeconomic policy mix. additionally, international developments and regulation could also affect domestic cyclical movements. nowadays, we live in a world of ongoing recovery of the advanced economies from the long - lasting crisis, rising vulnerabilities of emerging economies, increasing and unpredictable volatility of the international financial markets and, on top of that, quite persisting geo - political risks. in this complex environment, we need to continue with internal policy coordination and international cooperation. therefore, we have been discussing here today quite comprehensive economic phenomena that require multiple angles of observation and profound analysis. although i believe that the research papers that are going to be presented today will shed light on some of the issues that i have mentioned, this will definitely be a challenge for the researchers in the period ahead, too. as policy makers, speaking today, many years after the onset of the global crisis, we can probably say that many policy challenges are already behind us, but still there are more to come. therefore, we need to keep on building our institutional capacity and research skills and i believe that today ’ s conference, as a continuation of our previous conferences, will additionally contribute to this goal, not only for us, but also for the participating central banks and other institutions. i look forward to yet another successful conference, interesting discussions and useful policy messages! thank you for the

pentti hakkarainen : the common banking supervision – what it is about? keynote speech by mr pentti hakkarainen, deputy governor of the bank of finland, at the nordic capital markets forum ’ s 2014 annual general meeting, helsinki, 13 may 2014. * * * accompanying slides ( pdf ) can be found on the bank of finland ’ s website. we had our own severe crises in early 1990s, but this time our financial sector has survived pretty well, keeping itself in a rather good shape. however, our financial markets are highly interconnected with international financial markets, and thus adverse effects were felt here as well. the crises have made it very clear at least that international, highly interconnected financial markets require a stronger institutional framework than what we have had in recent years. the authorities need proper tools to deal with ailing banks operating in integrated crossborder markets. the creation of these tools has taken major steps forward since. a mismatch all in all, the mismatch between the scope of international bank operations and the national supervisory framework made the situation extremely challenging. what to do? in principle, we can envisage three solutions. first of all, we could re - nationalize the financial markets. in such a solution, the single market would be lost. we would turn the clock back, lose benefits of integrated markets. second, we could just accept the risk of financial instability and periodically pay the price. or, finally, we could work to create a banking union, with better suited institutions and systems for single supervision and resolution. only the last one of these is acceptable. institutional arrangements for supervision and resolution need to match the integrated structures of banking business in the real world. let me emphasise that this is not an issues of the currency union but more of the integration and the single markets, i would like to recall ideas that stefan ingves raised in 2006 1. “ i propose the establishment of a new pan - european body, a european organization for financial supervision ( eofs ). the idea is to create a separate agency to follow the major cross - border banking groups in europe ”. “ the eofs should only focus on the presently about 40 truly cross - border banking groups and not deal with the about eight thousand european banks with a predominately national character. ” “ the eofs should have three tasks : it should gather information about the banking groups and their activities in different countries. importantly, it should also create