s reaction to the global financial crisis centred on a risk - averse philosophy and we responded to the deterioration in liquidity by tightening investment guidelines to reduce credit risk by limiting counterparty exposures. when a second wave of the crisis emerged in europe through potential sovereign defaults, the bank decided to rebalance its portfolios in order to manage exposures to affected peripheral euro area countries. foreign exchange reserves make up a significant component of total assets of central bank balance sheets. due to this concentration, central banks are subject to stringent reporting requirements from the general public, and more specifically, governments and shareholders. to this end, central banks have been developing sound governance structures, improving accountability through more transparency and introducing a culture of higher risk awareness across all their operational activities. efficient management of foreign exchange reserves has become vital for maintaining sound perceptions of central bank credibility. undoubtedly, a jukka pihlman and han van der hoorn ( 2010 ), procyclicality in central bank reserve management : evidence from the crisis, imf working paper bis central bankers ’ speeches loss of reputation through bad governance could undermine the ability of a central bank to perform its primary tasks of ensuring price and financial stability. good governance and sound functional organisational structures are therefore necessary for the efficient management of reserves. in establishing these structures, clear decision - making processes ; appropriate delineation of roles and responsibilities, clear execution guidelines, and accountability through adequately transparent regular reporting, should be well defined, documented, adopted and institutionalised. it goes without saying that there is no one correct way of establishing a governance framework, and that country - and institution - specific circumstance must be taken into account, while not compromising on the principles. borio et al note that there are two dimensions to consider in governance – vertical and horizontal governance. 2 vertical governance ensures that decisions are taken at the right level ( senior executives ), that is, where the strategic direction of the organisation is established. senior management of the institution should carry out the responsibility of oversight on the investment process and management of reserves. horizontal governance ensures that business areas and reporting lines are organised in a way that minimises the potential for conflicts of interest. the senior governing body needs to provide overall strategic direction through an investment management policy, which encapsulates the risk tolerance for the institution, while an investment committee should be responsible for the tactical position and for establishing the investment guidelines, and whereas day - to - day trading activities and taking active positions should be the

expects a downturn similar to that forecast by the imf for 2020, but a more protracted recovery in 2021 and 2022. this forecast is subject to substantial downside risks stemming from the uncertainty concerning the further spread of coronavirus. unique features : a health crisis truly global in scope the current crisis has two unique features that distinguish it from all preceding crises of the past decades : it started off as a health crisis, but has immediately morphed into an economic crisis, and it seems to be unprecedented in terms of its global coverage, simultaneity and economic severity. let me first elaborate on the first distinguishing feature : the stringent containment measures in response to the health crisis set the ground for a major economic downturn. the current surge in infection numbers, especially in many countries of the cesee region, does not bode well for a change in the crisis response in the near future : we may see more stringent containment measures over the winter, as has already been witnessed in the czech republic and slovakia. thus, the substantial downside risks are, in part, already materializing. this will aggravate the economic burden. let me now move on to the second distinguishing feature : the crisis is truly global in nature. hence, we are confronted with a simultaneous shock to both domestic and external demand. in addition, an unprecedented degree of uncertainty is weighing negatively on consumption and investment. as a result, especially small, open and strongly integrated economies – like the cesee countries – are highly vulnerable in economic terms. before relating these two features to the topic of this year ’ s conference, let me briefly review the most recent economic developments in the cesee region. largest recession since the early 1990s in the second quarter of 2020, several cesee countries reported the largest quarterly decline in economic activity since the early years of transition in the 1990s. despite the depth of the gdp decline in the second quarter of 2020, the cesee region still reported more benign real gdp decline figures than the euro area ( – 7. 3 % compared to – 11. 8 %, quarter on quarter ). the summer months allowed for a breather ; however, the swift economic recovery is likely to be short - lived. this is, at least, indicated by the most recent readings of activity as well as sentiment indicators. against the background of rapidly rising infection numbers, improvements in these indicators have stalled in the past few weeks ( schreiner et al., 2020 ). economic policy has come