durmus yilmaz : financial security and stability speech by mr durmus yilmaz, governor of the central bank of the republic of turkey, at the forum “ measuring and fostering the progress of societies : the oecd world forum on statistics, knowledge and policy ”, istanbul, 28 june 2007. * * * dear guests, i would first like to welcome you all to istanbul, the city where the two continents meet. and today it is so delightful to see that it is a meeting point for high level delegates from all the continents. in that regard, it is a great pleasure for me to be given the opportunity to share my views on financial stability and security with such a distinguished audience. today, i would like to begin my speech by underlining the importance of financial stability, why and how we should keep an eye on the stability of the financial system, including the turkish perspective. finally, i will try to emphasize the interrelatedness between financial security and stability. importance of financial stability … as a result of the liberalization and deregulation processes, financial markets became more integrated and underwent radical transformation, starting, in fact, with developed countries in the late 70 ’ s and spreading to developing countries in the 80 ’ s and 90 ’ s. at the same period, capital movements were seen to have accelerated and reached to high levels. this, in turn, led to financial innovation and heavy use of sophisticated instruments. the degree of sophistication in financial markets urge all market participants to increase their focus on risk management and policy makers to monitor closely the developments and identify risks in these markets. this shift in market participants ’ perceptions is particularly important, considering the lessons derived from painful experiences of crises, which especially occurred during the last two decades all around the world. these lessons taught us how costly and disruptive financial instability can be and how effective risk management can be to avoid adverse conditions in advance. even though there is no consensus on how to define financial stability, its importance is widely accepted. due to the financial crises experienced on the road to globalization, along with financial liberalization and technological improvements, “ financial stability ” in line with the target of achieving price stability, has become one of the leading policy issues of central banks. however, i should point out that, although price stability has a commonly accepted and clear definition, i can say that it is much more difficult to define financial stability. the european central bank defines financial stability as the financial system capability

##ness of institutions. in the broader sense, we could conclude that strengthening market discipline within a clear prudential framework can help achieve a better balance between financial system stability and economic efficiency. in that sense, as the central bank, we are very well aware of our responsibility in implementing sound and coherent policies and delivering these policies and policy related messages to the markets within the context of maximum transparency and timeliness. all these components contribute to financial security and in turn enhance the financial stability in the system, accommodating policy makers ’ further decisions. actually, financial security and stability are so much interrelated that one could easily argue that the stability is also a prerequisite for the security in the system or vice - versa. lastly, financial security and thus, stability contributes to the health of the financial systems, efficient allocation of resources and effective management and distribution of risks in the economy. maintaining and safeguarding financial stability is a must for the authorities of every country not only to have a sound national financial system but also to contribute to the overall soundness of the world financial markets. policy coordination between institutions on international and national levels will certainly be the most important aspect of this dynamic process. thank you for your attention.