Introduction
Good morning and welcome to Brussels for this fifteenth International Conference of Banking Supervisors. I would like to begin by thanking Governor Guy Quaden of the National Bank of Belgian and Chairman Jean-Paul Servais of Belgium’s Banking, Finance and Insurance Commission for graciously hosting this conference. The organisation of this conference began shortly after the ICBS in Mexico ended. Despite the extensive preparation of our Belgian hosts, I do not think any kind of planning could have prepared us for what we are now experiencing in the financial markets.
The events we have witnessed in the past two weeks are nothing short of extraordinary. Some of the world’s largest financial institutions have declared bankruptcy, have been purchased or have been thrown a government lifeline. Considerable uncertainty and market volatility persist and will likely continue for some time to come. The official sector, including the supervisory community, are working to promote a deleveraging process that limits as much as possible the spillover from the financial to the real economy.
As supervisors, central bankers and policy makers – what are we to make of all of this? Just as we caution bankers during the good times to prepare for the rough times that inevitably lie ahead, we too must use this opportunity to assess the lessons learned to better prepare for the future.
This morning I would like to share with you some of my views on the lessons the crisis has taught us and, more importantly, how we can use this experience to better prepare for the future. Clearly, we are still in the midst of this process and more lessons are likely to arise. As you know, both Belgium and my home country, the Netherlands, are on the shore of the North Sea, which can be extremely stormy at times. In the past, people were at the mercy of these storms. For instance, in 1570 more then 20,000 people died during one of the worst storms in history. So how did people react? They built dikes to protect against the floodwaters. Despite these buffers, a bit more than 50 years ago, the Netherlands as well as Belgium, the UK and Germany were caught again by an enormous flood, which flowed over the dikes – the buffers – that had been built up during the good years.
I believe this story is a good metaphor for what has recently happened to the global financial system. From time to time we witness financial storms. As supervisors we learn from these experiences and build dikes, or buffers, to protect against future floods. Nevertheless, the land beneath the dikes – our financial system and economies – can erode due to the passing of time or the battering from a tremendous storm. As the builders of the dikes, it is our role to continually monitor the strength and condition of the dikes; to assess the damage caused by each storm and try to anticipate the next storm. Bankers too have an important role in preserving the soundness of the dike – supervisors by themselves can not have sole responsibility.