, the istanbul exchange market has existed and operated since 1858. it grew out of the activities of non - muslim bankers in the galata district of istanbul. these operators, mostly levantines, jews, armenians, and greeks, used to risk their own capital by extending credit to the government, secured by pledges of future tax collections. even though during the early years of the exchange market ’ s operation in the 1860 ’ s, the amount of foreign direct investment in turkey was negligible, foreign capital was being encouraged to form joint stock companies. up until the beginning of the 20th century, the market helped the government find funds to finance its obligations. in 1906, the istanbul exchange market was re - organised and once more became a source of new capital for young private ventures. without giving the whole history of the istanbul exchange market, i want to emphasise that turkey ’ s experience with free markets did not begin in 1980 but goes back more than a century before. what the reforms of 1980 did accomplish was to institutionalise the markets and put them on a solid legal footing. besides liberalisation, the structural reforms begun in 1980 included measures providing investment and tax incentives. i would like to review these issues briefly. the aims of these incentives were to encourage activities that would earn foreign exchange on the one hand, and to help foreign sources of capital finance investments in turkey on the other. it can be said that by liberalising its capital account and introducing structural tax changes to improve investment returns, turkey issued an invitation to foreign capital. under these new arrangements, the tax incentives aimed at deepening the securities market and encouraging investment in it are of two kinds : - double taxation of dividends was prevented by raising the corporate income tax rate and making it the only tax on dividend income. in addition, the income tax rate for small shareholders was lowered. - for residents, capital gains on shares became exempt from taxation if the security was listed on an exchange. capital gains from the sale of through licensed intermediaries were made tax free. premiums from the issuance of stock are also tax free for stocks listed on a stock exchange that does not distribute dividends to shareholders. there are also tax facilities for government securities. privatization is an important part of our modernisation and liberalisation effort. turkey embarked on a privatization program in the 1980s. turkey ’ s telecommunications and energy sectors are great targets for global partnership. despite extensive exemptions from the program, by 1994 total proceeds derived from privatization since it began

seen so far. the attempts to address capital markets and their role as the “ financial foundation for main street, ” appear to place a much higher value on rhetoric than on substance and necessary reform. as a nation, we have violated the central tenants of any successful system. we have seen the formation of a powerful group of financial firms. we have inadvertently granted them implied guarantees and favors, and we have suffered the consequences. we must correct these violations. we must reinvigorate fair competition within our system in a culture of business ethics that operates under the rule of law. when we do this, we will not eliminate the small businesses ’ need for capital, but we will make access to capital once again earned, as it should be. the inevitable crisis the banking system has gone through an unprecedented era of change starting in the 1980s when lawmakers began removing the roadblocks to interstate banking. this evolution continued to pick up speed in the years that followed through a number of legislative moves that validated the creation of ever larger banks. the scope of activities continued to grow through the 1990s and by the end of the decade we saw the merger between citicorp and travelers group. that merger required the divestiture of certain activities, but this became unnecessary with the passage of the gramm - leach - bliley act. the legislation allowed a single financial company to engage in commercial banking, investment banking, insurance underwriting and brokerage. this expansion of activities, some argued, created a stronger system overall because the institutions were more diversified. for example, rather than being entirely reliant on a single community or industry, such as real estate, a stronger system was being created because banks were serving a broader nationwide base. a downturn in a single market would be offset by stability in other areas. although this new era of finance was widely supported, a critical ingredient was missing on the road to expansion and innovation : a framework that would limit dangerous excesses or the development of perverse incentives. undoubtedly, the most important omission was a way to deal with the larger firms that were using the new growth opportunities to become “ too big to fail ( tbtf ). ” although banking legislation in 1991 specifically tried to limit the federal deposit insurance corporation ’ s ( fdic ) ability to protect failing banks and their creditors, regulators could make an exception for large institutions whose failure might pose a threat to the economy or to financial stability. as a result, tbtf was embedded in our