william c dudley : what does interconnectedness imply for macroeconomic and financial cooperation? remarks by mr william c dudley, president and chief executive officer of the federal reserve bank of new york, at the swiss national bank - international monetary fund conference, zurich, 8 may 2012. * * * it is a pleasure to have the opportunity to speak here today. as i see it, the complex interconnections that exist between the real and financial sectors of the economy, both within and between countries, have important implications for both macroeconomic and regulatory policy. in particular, cross - border coordination in both realms is warranted. often, macroeconomic and regulatory policies are too narrow in their focus. at times, policies are designed with the goal of being “ best ” at the national level. yet the resulting mix of national policies is distinctly inferior to what a well - coordinated global regime could have produced. today i will discuss two important challenges that go along with living in an interconnected world. the first is how to define what aspects of macroeconomic policy or regulation require greater international coordination and harmonization. some issues can be handled effectively at a national level, but the crisis has demonstrated clearly that many can not. the second challenge is how to make international coordination workable so that progress can be made in a timely manner while still preserving sufficient autonomy for countries to fashion policies to suit their particular idiosyncratic structures. as always, my remarks today reflect my own views and not necessarily those of the federal open market committee or the federal reserve system. we live in a globalized economy in which the flows of products, capital, and ideas across borders have led to significant economic gains for literally hundreds of millions of people around the world. thus, there is a strong public interest in ensuring that this global economic integration is supported by a coherent set of coordinated national macroeconomic policies and a harmonized international regulatory regime. this applies to the policy actions we undertake to reduce economic imbalances as well as to the regulations we develop to address the vulnerabilities in our financial system that were exposed by the crisis. the better we are able to develop cooperative global solutions to these types of issues, the more successful we will be in creating a sounder and more sustainable global economy and financial system. it is clear that there were important imbalances in both economic and financial activity in the years preceding the financial crisis. for example, in the u. s., too much of economic activity was based on an

should be made in order to improve the expenditures structure, in view of decreasing the share of current expenses and increasing the capital investments. monetary performance due to the slowdown noted in the last quarter, the pace of monetary expansion decelerated slightly relative to the previous year. the average annual growth rate of m3 eased to 12. 3 per cent, down from 15. 8 per cent in 2007. growth of monetary assets of the economy is attributed mainly to banking system credit growth. the degree of financial intermediation in the economy further increased. banking system deposits to gdp amounted to 80 percent during 2008, compared to 78 percent for 2007. credit to gdp amounted to 37 percent, recording an annual growth of 7. 3 percentage points. during 2008 deposit developments were characterized by seasonal volatilities. deposits level recorded high growth paces mainly in summer and an obvious slowdown in the last quarter of 2008. on the asset side loan portfolio of the banking system for the economy increased by about 35 per cent during 2008. the credit structure performance revealed a slight shifting of the loan portfolio towards foreign - currency - denominated loans. the preference for foreign currency - denominated loans is attributed to their lower interest rates. it would have been accurate in the presence of a stable exchange rate. it is wrong under albania ’ s conditions, where the exchange rate is flexible and the possibility for its depreciating movements can not and should not be excluded. therefore, the bank of albania has concluded that commercial banks ’ clients do not pay due attention to the exchange rate risk, when they choose a foreign currency - denominated loan. credit growth pace has been decelerating along the year, reflecting both the tightening of lending standards in response to bank of albania ’ s regulatory measures and the tightening of the system ’ s liquidity position. the banks ’ difficulties in generating adequate liquidity and their more prudential policy in terms of lending, were reflected in the slowdown of credit to the economy growth and of fiscal sector ’ s financing. financial markets albanian financial markets have reflected not only the performance of economic developments at home, but also those of international financial markets. under these conditions, their indicators, such as liquidity, interest rates, trade volume and exchange rate, have been characterised by a higher volatility, however, remaining within the normal parameters of operation. in a general view, deposit interest rates indicated upward trends for deposits in the national currency and those in the euro. on the contrary,