improve its risk management and control framework depending on nature, location, size, sophistication, complexity of business operations and approved risk appetite. bis central bankers ’ speeches in order to have comprehensive and current information on operational risk, sbp will expand its existing reporting mechanism. sbp is working on a two prong strategy ; one is to update the existing instructions on frauds & forgeries with the purpose to further strengthen the fraud risk management and monitoring in banks. on the second front, guidelines on operational risk data collection will be issued to enhance the scope of loss data gathering in line with basel ii requirements and to provide the industry a minimum set of instructions for consistent recognition of losses and their reporting to a centralized data consortium. these projects are at an advanced stage of consultation with the industry. these guidelines / instructions will help banks improve their operational risk management processes. information security and business continuity are becoming the top supervisory concerns. banks need to monitor it security risks and respond to security breaches in a timely manner. banks need to devise and test their business continuity plans to ensure they are able to operate on an ongoing basis in the event of severe business disruption. the plans must be based on different types of worst case scenarios like inaccessibility of bank ’ s facilities, it infrastructure or a pandemic event. let me sum up the key message of this address. for sound management of operational risk, we need to inculcate a risk culture within the organization with open communication channels between business lines and control functions. there is a need for close cooperation between banks and sbp. we are all on the learning curve ; therefore exchange of ideas is very important in capacity building for operational risk management. i hope this conference will provide a good opportunity to exchange our thoughts on the subject and learn from each other ’ s experiences. thank you very much for your attention. bis central bankers ’ speeches

##condition for restoring the confidence in banking ; • build capacity in the central bank itself for pursuing an independent monetary policy and efficient banking system supervision ; • establish a modern payment system. many of these issues were successfully solved. manu of them are still being successfully treated. the national currency was successfully introduced, inflation was surmounted, and in the past 12 years it has been on average on the level of only 2. 2 percent, annually. the function of prudential supervision has been established, which is continuously being improved and upgraded. payment operations are conducted smoothly. so is the function of the government's fiscal agent. the capacity for conducting the monetary policy is in constant progress. from april 1992 until december 1995, the national bank applied a monetary targeting strategy, with the money supply m1 being the intermediate target. at that time, mainly direct instruments were used : selective credits, minimum liquidity, compulsory cb bills, discount rate and reserve requirement. the choice made was imposed by the circumstances : lack of developed financial instruments and institutional financial structure ; absence of the interest rate transmission mechanism, and high interdependence between the aggregate demand and money supply. in october 1995, nbrm made a shift towards monetary strategy of targeting the nominal exchange rate against the german mark, and later against the euro, with the denar exchange rate stability being the intermediate monetary policy objective. such a strategy, applied in a small and open economy such as ours, has proved to be very successful for maintaining the price stability until present day. all reforms in the monetary policy instruments since the independence have been directed towards introducing indirect, market - oriented instruments for enabling efficient monetary policy conduct. therefore, in 1993 deposit and credit auctions were introduced, and at the end of 1994 cb bills auctions were introduced. the initial development and strengthening of the financial system of the republic of macedonia, especially of the government securities market, enabled us to include new instruments, following the example of the modern central banks. in april 2005, we promoted the overthe - counter market for government securities. in the same year, we launched the general repo agreement and we started with repo operations when concluding lombard credits. in march this year, together with the ministry of finance we introduced treasury bills for monetary policy purposes. the transition of the monetary strategy and of the monetary instruments would not have been successful without adequate banking reforms. therefore, rehabilitation and privatization of banks were undertaken, deposit insurance fund was established and new regulation on prude