guy quaden : a changing imf and world bank speech by mr guy quaden, governor of the national bank of belgium, at the annual meetings of the imf and the world bank, istanbul, 6 october 2009. * * * i would like to warmly thank the turkish authorities for their hospitality shown during these annual meetings. the past 12 months have demonstrated the importance of a strong and effective imf. the fund reacted appropriately to the unfolding financial and economic crisis, by giving substantial financial support and advice. in this regard, i welcome that important modifications to the fund ’ s instruments were implemented, improving its capacity to help its members. moreover, i welcome the major initiatives that are being taken to improve the fund ’ s surveillance capacity. all members ’ full cooperation is needed to ensure surveillance traction. the fund must retain the central surveillance role and should not be subordinated to any outside process. the financial resources of the imf were significantly enhanced, reassuring its members that the fund has enough ammunition to fight any crisis. i expect that the money raised under the bilateral loan agreements and the imf notes programme will be folded into the new and expanded nab. the fund ’ s legitimacy follows from its almost universal membership combined with adequate governance arrangements. as the world changes, the fund must adapt to those changes. the governance reform being discussed is therefore important to improve the fund ’ s legitimacy, as well as its effectiveness. i fully support the general quota review to be concluded by january 2011. this review should be based on objective economic and financial parameters, relevant for the fund ’ s mandate and applied in a uniform manner. it should be guided by the long term resource needs of the fund, ensuring the fund remains a quota - based institution and should at the same time realign quotas with countries ’ economic position and their responsibilities in the world. this also implies that there cannot be a disconnect between representation and financial contributions. the oversight role of the executive board should be strengthened and the board should focus more on the fund ’ s strategy. but there is no reason to fundamentally change the responsibilities of board and management. the current number of seats on the board, 24, is appropriate for an institution the size of the imf. a reduction by a few seats will not significantly improve its effectiveness. moreover, the freedom of the members to form constituencies should be respected. the strategic guidance provided by the imfc could be improved. but more political involvement should not lead to politicized decisions.

background, we will remain alert as to whether any indications on further downside risks to price stability emerge and we stand ready to act. a second challenge we will be facing in the coming months is to make the single supervisory mechanism really work. as i initially explained, the institutional reforms that have been adopted or are being adopted to establish a banking union constitute important progress. but to meet the ultimate objective of strengthening financial stability, implementation is key. and implementation is well under way : the supervisory board has held its first three meetings ; a framework regulation has been prepared and is now the subject of a public consultation ; and work is progressing on the supervisory model of the ssm with the supervisory manual. one of the first major implementation tests is the comprehensive assessment, the health check of the euro area banking system, which is currently being conducted as a prelude to the ssm becoming operational. here, the ecb is making good progress in establishing the new structures and ensuring that the exercise will be fair, transparent and stringent. but many more steps still lie ahead of us. a final challenge relates to the macro - prudential arm of the ssm. as you know, the ssm regulation gives the ecb the power to apply stricter macro - prudential measures than the national authorities if it deems them necessary. we can also advise on the calibration of instruments. this goes some way towards insuring against an inaction bias at the national level, thus improving the prospects for a more stable euro area financial system. we will maintain a clear separation of objectives between the macro - prudential policy framework and monetary policy and a clear hierarchy, with price stability remaining the ecb ’ s overall primary objective. but we are very much aware that both policies may interact. as mentioned before, financial instability may undermine monetary policy ’ s ability to maintain price stability, both directly by its negative impact on credit provision, growth and inflation and indirectly by impairing the monetary transmission process. conversely, a protracted low interest rate environment necessary to maintain overall price stability may create incentives to search for yield and lead to local bubbles in a heterogeneous monetary union. in both cases, macro - prudential policy can be used to address financial stability concerns and facilitate our monetary policy conduct. in the first case, where the financial stability concerns are of a systemic nature affecting the whole euro area, those policies will have to be coordinated. in the second case, national macro - prudential