supervisor, and that it is guided exclusively by the quality of banks, their manner of management, degree of risk, etc, and not by nationality of individual shareholders. my personal advice that i would like to give to those bankers who are aware that their time is ticking away is this : • not to waste time by arbitrarily proclaiming their own selves as national interest, • not to organize the purchase of their own shares at bank counters for cash, • not to fritter away precious time seeking political connections, even family connections in the country and abroad, but simply to do what the law expects them to do with a view to creating a stable and sound banking system. nbs moves on without turning back! as regards the measures taken by nbs in the field of insurance, i may freely say that we did not “ pursue ” the supervisory capacity in respect of insurance companies, but rather that such capacity was entrusted to us. however, once we have been given this responsibility, we intend to perform it conscientiously, equally well as we perform control over the banking sector. nbs will take all legally envisaged measures with a view to ensuring the introduction of financial order in the insurance market and its development, as well as the protection of rights and property of policyholders. whether it will be the citizens who, through costlier insurance policies, will bear consequences of unconscientious business practices of closed insurance companies, and to what extent, does not depend on the nbs – it is the rule of law and judiciary system that are now put to the test! if insurance companies - which “ invest ” up to as much as eur 20, 000 in one square meter of business space, which tie policyholders ’ deposits with banks to loans to the owner, and buy nail polish using your and my insurance policy funds – do all this with impunity, and, what is more, remain in possession of the real estate acquired in that way, then it is equally justified to raise the question as to whether laws in serbia have equal application to all citizens or the judiciary system may be influenced by money and partisan and “ godfather ” connections. we all hope for the fastest practicable accession to the eu, with feasibility study as the road leading to that objective. that is why i would like to point out that no bypasses, no shortcuts, or “ partial ” transitions are possible on that way. what we have failed to do with

’ nerves. now, as we all know, the 100 percent coverage may subject both bankers and depositors to moral hazard in the form of willingness to take greater risks to earn higher returns. depositors may encounter moral hazard when they ignore greater risks associated with their choice of a depository institution which offers them higher rates for their deposits. but even though all the drawbacks of the present system of deposit protection are well known, current conditions in the world financial environment and their effects on the turkish financial system have prevented us from making the necessary changes in the existing deposit insurance scheme just now. once we manage to stabilise the macroeconomic environment, we will be able to reduce the 100 percent coverage to internationally acceptable levels. how a powerful and effective supervision could be implemented for the turkish banking system was foreseen many years ago. the system in effect during the 1930s had revealed its inadequacies, but the first step was not taken until 1959 with the establishment of the board of sworn bank auditors. the system was first applied to the turkish economy under the direction of the ministry of finance. the board recruited many valuable employees, trained them, and gained the power to supervise the system. but as i mentioned earlier in connection with the need for additional principles to preserve the soundness of the system, the rapid changes of recent years, their consequences and events occurring in the international environment have underlined the importance of effective supervision. in 1997, the bank for international settlements ( bis ) enumerated the 25 core principles to be used for banking supervision. the need for such principals was well understood after the financial crises in asia and russia. i may say that, during these events, which have been going on for several years, the majority of the turkish banking system has gained great advantages from adopting these changes. these banks have succeeded in keeping pace with the era, especially with respect to technological innovations, strategies for risk - taking and management techniques. besides these advances, there were some factors that damaged the system. these are : 1 ) high inflation. 2 ) high public sector borrowing requirement. 3 ) the lack of an efficient legal framework. in addition, the style of banks ’ operations and strategies are somewhat different in a high inflation, as opposed to a normal, environment. on the one hand, banks try to sidestep the harmful effects of inflation. on the other hand, they revise their methods of overcoming uncertainty and taking risks. and more important, as the public persists in continuing