durmus yilmaz : financial education and awareness – challenges, opportunities and strategies speech by mr durmus yilmaz, governor of the central bank of the republic of turkey, at the international conference on financial education and financial awareness : challenges, opportunities and strategies, istanbul, 10 march 2011. * * * distinguished minister, esteemed participants, esteemed guests and members of the press, welcome to our conference on financial education and financial awareness. as you know, these concepts have progressively come into prominence in both developed and developing countries in recent years. after a brief conceptual introduction, i will continue my speech by talking about the financial education in turkey and efforts of the central bank in this respect. distinguished participants, financial education has always been an important concept in terms of allowing individuals to manage their budgets, arrange incomes and expenditures, manage their investments and savings effectively, and protect themselves from possible losses. with the increased variety and complexity of financial products in today ’ s world, this issue is becoming even more important for both individuals and the financial system. on the back of globalization, the liberalization trend in economies, the easing of restrictive regulations in the financial sector and the liberalization of capital flows at international level since the early 1980s, more and more individuals participate in financial markets as investors in many countries, primarily in developing ones. in this framework, financial education assumes greater importance in terms of minimizing financial risks for those who do not have sufficient experience of capital market instruments. financial awareness supports a more rational decision - making process for individuals by improving their literacy against financial risks. increasing financial literacy will contribute to the more efficient functioning of financial markets, enhancement of financial stability and consequently the social welfare by increasing productivity in the overall economy. therefore, financial education assumes importance not only for individuals but also for giving depth to the financial system and improving market efficiency. parallel to increased financial literacy, the volume and variety of information sought by individuals from financial institutions will also increase. this will, in turn, lead to more transparency in financial markets. besides, consumers ’ demands for products and services that meet their needs will enable the development of creative, innovative and competitive financial products and services in financial markets. moreover, financial education will lead to an increase in the individuals ’ propensity to save and create a more efficient social security system. higher rates of savings will have favorable effects on investment and growth and contribute to economic development and financial stability. i would like to especially underline that financial education is not an

##ving for price stability is not enough : it has to augmented by stability in the financial system. these two goals often conflict, therefore monetary policy alone is not capable of continuously facilitating both of them. additional policy tools are needed. as i said earlier, in small open economies the conflict often manifests in volatile capital flows. a first policy reaction to such a situation often is the introduction of capital controls, just like the ones we currently observe in latin american and asian emerging countries. now, the cesee region may not currently be a target of hot money inflows, but this may change in the future. the use of capital controls is a controversial issue, and excessive reliance on them in the cesee region ( at least in the countries that are already eu members ) is off the cards anyway, as it is against the fundamental eu principle of free capital movement. this leaves macroprudential regulation as a potential policy tool in these countries to mitigate systemic risk, either inherent or stemming from volatile capital flows. macroprudential tools are generally categorized into two types according to their primary aims, which can be ( a ) enhancing systemic resilience or ( b ) leaning against the financial cycle ( reducing procyclicality ). systemic resilience tools are typically microprudential instruments recalibrated for macroprudential purposes. these may include the regulation of various ratios, such as loan - to - value ( ltv ) or payment - to - income ( pti ), or forbidding “ toxic ” products. hungary recently has deployed such tools in order to discourage unhedged fx lending, which proved to be a major source of systemic risk. regulation may be stricter in the case of systemically important ( e. g. too - big - to - fail ) financial institutions. typical examples of countercyclical tools are dynamic provisioning ( e. g. the one in place in spain even before the crisis ) or a countercyclical capital buffer ( e. g. the one proposed in the new basel iii regulatory standards ). similarly to monetary policy, macroprudential policy can be tight or loose. in other words macroprudential policy may be characterised by its stance, just like monetary policy. as i mentioned earlier, an important factor in the effectiveness of macroprudential policies is cross - border consistency. 9 cross - border coordination in the end should boil down to coordination of macroprudential stances. the