taking in the banking sector. the result is familiar from many other countries today : a large current account deficit, a heavily indebted and uncompetitive economy and an overextended banking sector. then, the soviet economy collapsed at the start of the 1990s. this had a significant impact on finnish export industry and triggered a severe economic and banking crisis, which was at that time the most severe in the oecd countries since the second world war. dear colleagues, friends, the choice of title for this conference – “ monetary policy under resource mobility ” – reflects the central theme in the history of the bank of finland. it is also a central theme for all other central banks. the central bank works right at the nexus between the domestic economy, on the one hand, and global markets and policies, on the other. central banks have their responsibilities at both national and international level. when the world changes, the central banks are among the first to feel the changes ; they work inside the changes as it were, and they may even be able to manage them. at this time, the world economy is undergoing profound changes that pose formidable challenges for both central banks and economic researchers. we are witnessing a process of great convergence. in a few years ’ time the combined output of the emerging economies will surpass the output of the advanced economies when measured in purchasing power parities. it is not only about production of goods and services. it is also about capital. the emerging economies have become major sources of savings, and the equilibrium – or lack of it – of global supply and demand hinges on how the surpluses of some countries are channelled to other countries and used there. it is also about technology, which now spreads from country to country faster than before, narrowing productivity differentials and eroding the competitive position of many traditional centres of know - how. it is also about labour, as evidenced by migration flows and migration pressures across many borders in the world. i am very proud to note that our programme for tonight and tomorrow is filled with the world ’ s most distinguished academics and central bankers. bis central bankers ’ speeches we will start tonight with a session devoted to what we can learn from the economic history of globalization and global shifts. the topic will be introduced by professor barry eichengreen of the university of california at berkeley, and we are also very lucky to have three very special discussants, each of whom has an excellent vantage point over the global shifts that we are talking

erkki liikanen : on the structural reforms of banking after the crisis speech by mr erkki liikanen, governor of the bank of finland and chairman of the highlevel expert group on reforming the structure of the eu banking sector, at the centre for european policy studies, brussels, 23 october 2012. * * * changes in banking in the run - up to the crisis the new landscape in the years preceding the global financial crisis that started in 2007, the landscape of banking had gone through major changes. global financial institutions had grown ever bigger in size and scope and their organizational complexity had increased, adding to their opacity. they had become strongly interconnected via increasingly long chains of claims as well as correlated risk exposures, arising from increasingly similar investment strategies. their leverage had strongly increased and the average maturity of their own funding had shortened. driving forces behind these trends were forces that intensified competition in banking ; technological development and deregulation. advances in information technology as well as in investment theory and practice meant that commercial banks faced increasing competition both on their liability side and asset side. 1 new savings alternatives to bank deposits, such as money market mutual funds, proliferated and new opportunities for borrowing, in addition to bank loans, emerged. in fact, an entire shadow banking sector developed, comprising a chain of non - bank institutions which were able to provide similar financial intermediary services as traditional banks. in this environment, deregulation was partly a response to this and allowed banks to cope with the increasing pressure from non - bank competitors. in the us, the gradual unwinding and the ultimate repeal of the glass - steagall act in the late 1990s made it possible to reunite investment banking and commercial banking which had been separated since the crisis of the 1930s. 2 in europe, the universal banking model already had a longer history of combining commercial banking and investment banking under the same roof. however, there was a trend before the crisis, among the biggest european banking institutions, to strengthen their focus on investment banking, including trading operations, and to increase wholesale funding to the point of excess. part of this trend was driven by the growing demand by non - financial firms for risk management services. with more freedom to choose their business models, banks sought for economies of scale and scope and strived to take advantage of diversification benefits from multiple sources of income. commercial banking moved increasingly away from customer relationship - based banking where loans are granted and then held until maturity to the “ originate