a h e m wellink : the role of the nederlandsche bank address by dr a h e m wellink, president of the nederlandsche bank, on the occasion of the russia - netherlands economic forum at the hague on 29 october 2001. * * * introduction it is with great pleasure that i ’ ve accepted the invitation to deliver a brief address this morning, not least, of course, because this forum has been organised in co - operation with our colleagues of the bank of russia. at the request of the organising committee, i shall dwell briefly on the main tasks of the central bank of our country, the nederlandsche bank, as well as on the relations with the european central bank. some of you probably also attended the previous conference, held in amsterdam in may 2000, which had ‘ transition to the market economy : actual problems in financial and banking sectors ’ for a theme. one of the items highlighted on that occasion was financial stability. who could have suspected at the time that a mere eighteen months later, on the eleventh of september, an act of unprecedented brutality would put the international financial system under threat? 11 september : also an attack on financial stability on tuesday the eleventh of september, it was soon brought home that the system of ( international ) payments was running the risk of becoming seriously unsettled. it was not at all certain either at that point whether the financial markets would continue to function properly. fortunately, despite some minor hitches, payment systems could be kept operational. even so, the american financial markets did not open again until the seventeenth of september. since that day, the fed, the ecb and several other central banks have cut their interest rates. all in all, the monetary authorities have managed to ward off the acute threat to the financial system by a wide range of monetary measures. their actions were swift and well co - ordinated. presently, the authorities are seeking to cut off terrorist groups from their financing sources by tracking and freezing their bank balances. it may be clear that this is a comprehensive operation for the international banking system. in our country, the scope of the supervisory legislation will be extended to include trust offices and special financial institutions. the existing legislation, such as that governing the disclosure of unusual transactions, will be adjusted as well. these measures all serve to safeguard the integrity of the financial system. i firmly believe that the currency markets would have grown quite restless if it hadn ’ t been for the euro or the ecb. and

longterm lending. together, these measures will help to prevent excessive maturity transformation. given the importance of these liquidity requirements, it is worrying that the eu has not yet shown a clear commitment to implement them in full, without any reservations. next to capital and liquidity requirements, there is a variety of other measures aimed at reducing excessive risk taking. these are a third element of the current reforms. for instance, in the us, the volcker rule may impose direct restrictions on trading by banks for their own account. for banks based in europe, excessive risk taking will be discouraged by remuneration rules. these rules require that traders with a significant risk - taking role will receive part of their bonus in the form of shares with a delay of several years. thus, if highrisk trading results in large losses, then traders will share in these losses. the fourth key element of the current reforms consists of resolution measures. the crisis has shown that with the current regulatory tools large banks cannot be allowed to fail, because the costs for society would be too large. however, a bank failure can never be fully prevented – not even with the new rules for capital and liquidity and the other measures. it is therefore essential that any bank failure can be resolved at minimal cost and, if possible, without taxpayer support. resolution measures include the preparation of recovery and resolution plans, or living wills. these plans provide detailed guidance for emergency measures and, if these were to fail, an orderly restructuring or bankruptcy. in addition, in some countries there is a discussion about precautionary measures such as ring - fencing of retail activities. regardless of the precise regulatory approach, to make the failure of a large international bank – however unlikely it may be – a manageable event, some banks may need to change their structure. unfortunately, for the near future, resolution frameworks will remain focussed on the national level, because an international resolution regime is not politically feasible. as a consequence, resolution can be inhibited by the complex structure of large banks, many of which consist of thousands of legal entities all over the world that are interconnected through a variety of financial arrangements. to be able to quickly restructure a bank in times of crisis, these interdependencies must be made transparent and reduced. consequences for the financial system the current reforms will undoubtedly increase the resilience of financial institutions and enhance the stability of the system as a whole. however, there will also be broader consequences for the