General Manager's speech: The narrow path ahead

Speech by Mr Jaime Caruana, General Manager of the BIS, on the occasion of the Bank's Annual General Meeting, Basel, 29 June 2009.

Abstract

Mr Caruana assesses the path ahead from the financial crisis. He sees the crisis as the steep downside of an extraordinary global financial cycle that was amplified by structural weaknesses. As a result, the path to a self-sustaining recovery is narrow and fraught with risks. Policymakers need to facilitate the necessary adjustments in the financial system and the real economy while cushioning the impact of those adjustments on growth and employment. And they need to ensure that the short-run responses to the crisis do not mortgage the future. This calls for close attention to sustainability and exit strategies. Complementary modifications to both financial and macroeconomic policy frameworks are needed to limit the risk that such a costly event ever recurs. A key modification to financial frameworks involves strengthening the macroprudential orientation of financial regulation and supervision. A key modification to monetary and fiscal policies involves more symmetric responses to the build-up and unwinding of financial imbalances. All of this puts a premium on international cooperation.