christian noyer : banking regulation and the financing of the economy introductory speech by mr christian noyer, governor of the bank of france and chairman of the board of directors of the bank for international settlements, to the paris - europlace forum, new york, 26 april 2010. * * * it is a great pleasure for me to be here in new york and address the audience of this pariseuroplace forum. as always, the forum is an opportunity for sharing experiences and perspectives. as we make progress in our efforts to strengthen financial regulation, such discussions are very valuable for confronting views and making sure that we are on the right track. to some extent, the ultimate aim of financial regulation has to do with financing the real economy. sound regulation should enable the stable provision of financial services to economic agents as they strive to finance their activities. this is why i would like to discuss with you a few aspects of the current reforms of financial regulation that are critical in terms of the financing of the economy. more precisely, in the few minutes i have, i would like to share with you some thoughts on three important policy challenges. how can we make our financial systems more resilient and therefore capable of financing the economy on a long term basis? how can we reduce the procyclicality of financial systems? how can we address systemic risk? before discussing these topics, let me first set the stage and recall why the current focus on enhancing banking regulation is right. from an economic viewpoint, banks perform two broad functions. they first perform maturity and liquidity transformation. maturity and liquidity transformation is due to the nature of their assets and liabilities : traditional bank assets are rather illiquid and longer term, whereas their liabilities are more liquid and shorter term. banks also perform a credit risk screening function, as they should be well - equipped to assess such risks. as such, banks are central to the financing of economic activity. economic development requires sound banking systems. indeed, productive investment and, to some extent, consumption, which constitute the fuel for growth, require financing in order to be carried out. this financing may be obtained through two channels : capital markets or banks. these two channels are complementary. but the role of banks is clearly central. this is especially true in continental europe, where they are responsible for more than 80 % of financial intermediation. although us firms rely much more on financial markets, banks play a key role here too. admittedly, large companies,

this regard, the demands by customers and innovations by financial sector players as a result of being empowered through financial education drive financial sector development. this scenario clearly confirms that each one of us requires financial education. all aspects of our lives entail financial decisions and limited financial knowledge is a precursor to poor savings and investment decisions. ladies and gentlemen : fsd kenya and the central bank of kenya in conjunction with several other financial sector players have undertaken two financial access surveys ( finaccess ) in 2006 and 2009. the surveys were aimed at establishing the level of kenya ’ s population that utilises formal financial services. the two surveys established the banked population as 19 percent in 2006, it has increased to 23 percent in 2009. i am sure with financial education and more products in the market this proportion will increase. the finaccess surveys have also included questions on financial literacy and use of technology in financial transactions. following the release of the 2006 finaccess survey results, fsd kenya brought together several financial and education sector players to form the financial education partnership ( fep ) to spearhead the development of a national strategy on financial education. the efforts of the partnership are progressing well. in addition, i have been appointed as the national champion of financial education in kenya and the launch of four pilot projects to inform what modes of financial education work in kenya are important dimensions. ladies and gentlemen : the partnership ’ s quest to develop a national strategy for financial education in kenya is mainly informed by the need to protect the consumers of financial services. the best way to protect consumers is to empower them with financial knowledge which they can use to demand quality services at fair prices. as the financial education strategy is being developed, the government through the ministries of finance and trade are spearheading efforts towards coming up with a comprehensive financial services consumer protection law. however, the law alone will not be enough, since for consumers to take advantage of it they must be enlightened on their rights and obligations regarding financial transactions. ladies and gentlemen : let me now share with you the aspirations of the central bank of kenya ( cbk ) as regards financial education. other than its participation in the partnership, the core mandates of the bank, which are price and financial stability, demand that we explain to the public all that we do to achieve these mandates. in this regard, cbk takes up available opportunities to disseminate financial knowledge to the public. in particular, the success of the new developments in our banking