International Forum on Financial Systems
Istanbul, Sept. 11, 2013
Mehmet Şimşek
Minister of Finance
Outline
Importance of Macro-Financial Stability
• The Global Financial Crisis Experience
How to achieve Macro-Financial St...
Importance of Macro-Financial Stability
The Global Financial Crisis Experience
3
Pre-Crisis Background
Loose Monetary and Fiscal Policies
Global Macro Imbalances
Financial Deregulation & Innovation
Greed...
Loose Monetary Policies (US)
Source: Bloomberg
-1.00
-0.50
0.00
0.50
1.00
1.50
2.00
1990-1
7
1991-1
7
1992-1
7
1993-1
7
19...
Loose Fiscal Policies (US)
Source: IMF
6
-6
-4
-2
0
2
-600
-400
-200
0
200
1998 1999 2000 2001 2002 2003 2004 2005 2006 20...
‹#›
Expansion of Asset
Price Bubbles
Loans Used by
People who were
unlikely to Pay
Back
Opaque
Transactions
Converting Real
Es...
Greed & Reckless Risk-Taking
Source: IMF
* Albert Einstein
9
198.8
244.4
190
200
210
220
230
240
250
1998 1999 2000 2001 2...
Impact of Global Financial Crisis
10
Worst Crisis Over the Past 60 Years
-2,0
-1,0
0,0
1,0
2,0
3,0
4,0
5,0
6,0
7,0
8,0 1950
1952
1954
1956
1958
1960
1962
1964
...
Unemployment
31.8 million people have lost their jobs since
2007 due to the effects of global financial crisis
12
Soup Lin...
Source: IMF, OECD
13
DebtStock/GDP(%)
Public Debt
67.2 66.4
74.5
106.5
92.9
108.8
50
60
70
80
90
100
110
120
USA Eurozone ...
Money for Nothing?
14
Fed Balance Sheet ($ bn)
Source: Bloomberg
909
3,654
700
1,200
1,700
2,200
2,700
3,200
3,700
4,200
12/5/2007
6/5/2008
12/5...
‹#›
‹#›
‹#›
How to achieve Macro-Financial Stability?
19
Globally
20
Financial Regulatory
Reform
Addressing
sustainability, enviro
nmental & social
governance
Regulation
Euro Area Banking
Uni...
Financial Regulatory Reform
Promoting market
efficiency &
productivity
Channeling financial
assets away from
speculative c...
Euro Area
Banking Union
Accountable
banking
supervision
Credible
backstops
Minimizing
conflicts of
interest
Development &
...
More Effective Supervision
24
• The European Banking Authority
• The European Securities and Markets Authority
• The Europ...
More Effective Coordination
25
Financial Stability Board
Coordinate the work of national financial authorities and
interna...
Resolve social or environmental challenges while generating
financial profit
“Amount of capital allocated to impact invest...
Increasing Financial Literacy
Teaching basic
knowledge &
understanding of
financial matters to all
agents in the economy
M...
An Alternative Model for a More
Equitable, Stable and Sustainable Financial
System
28
Islamic Finance
Sharing loss makes the system more resilient
No credit derivatives
No lending for speculative positions
Is...
TURKEY
30
Impact of Global Financial Crisis
Not a single penny spent on bank bailouts
Experienced a temporary recession
Swift recove...
Real GDP
Source: TURKSTAT, Eurostat, BEA
32
165.2
121.0
109.3
90
100
110
120
130
140
150
160
170
2002-Q1
Q3
2003-Q1
Q3
200...
Factors that helped Turkey weather the Crisis
Political Stability
Price Stability
Sound Fiscal
Position
Lower Public
Debt
...
Political Stability
34
15 Months
124 Months
0
20
40
60
80
100
120
140
Average Lifetime of Governements during 1950-2002 AK...
35
Price Stability
We Reduced the Inflation Rate to Single Digit
Source: TURKSTAT
107.2
125.5
99.1
6.2 6.2 5.0 5.0
0
20
40...
10.8
7.9
4.1
0.1
-1.3
0.2
1.6
5.5
3.0
0.4
1.0
1.5 1.2 0.9
-2
0
2
4
6
8
10
12
2002 2003 2004 2005 2006 2007 2008 2009 2010 ...
74.0
67.7
59.6
52.7
46.5
39.9 40.0
46.1
42.3
39.1
36.2
35.0
33.0
31.0
30
35
40
45
50
55
60
65
70
75
2002 2003 2004 2005 20...
Well-Capitalized Banking SectorCapitalAdequacyRatio,%
Target Rate 12%
Legal Rate 8%
Source: BRSA
Capital adequacy ratio tw...
Low Household Leverage
Source: CBRT, ECB
* Financial Stability Report, 2013, CBRT
(HouseholdLiabilities,%ofGDP,2012)
39
65...
Moderate Corporate Leverage
40
39.2
34.1
0 20 40 60 80 100 120
Luxembourg
Spain
Portugal
Netherlands
Ireland
Denmark
Italy...
Flexible Exchange Rate
Source: CBRT
REER(2003=100)
41
55
65
75
85
95
105
115
125
135 1989-1
7
1990-1
7
1991-1
7
1992-1
7
1...
A good macroprudential framework
42
Institutional Framework
43
Financial Stability Committee
• Effective & timely implementation of policies affecting the fin...
Macro-Prudential Framework
44
A Macro-Prudential Framework:
Short, Medium and Long-Term Policies
Short-Term
• Reducing exc...
Banking sector stress tests since 2004
A 12% target CAR since 2006
Limits on dividend distribution since 2008
A ban on HH ...
Turkey’s Structural Reform Agenda
&
Long-Term Prospects
46
Turkey’s Structural Reform Agenda
Combatting
Shadow Economy
Enhancing
Competition
Deepening Capital
Markets
Education
Impr...
Determinants of Long-Term Growth
Quality of Institutions
Demographics
Productivity
48
Improving Quality of Institutions
Doing Business
Corruption
Perception Index
Global
Competitiveness
Index
Human
Developmen...
Favorable Demographics
Source: Eurostat
Shareof15-24yearsoldinTotalPop.(%)
16.8
7 9 11 13 15 17 19 21
Andorra
Italy
Greece...
2.0
1.0
0.3
0.7
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
Turkey USA EU-27 OECD
AnnualAveragePopulationGrowthRate
(%,2001-11...
Long-Term Targets: GDP
Source: TurkStat, Medium-Term Program, PwC
2002
2050
National
income
$ 230 billion
in 2002…
Nationa...
Long-Term Targets: GDP per Capita
Source: TURKSTAT, Medium-Term Program,PwC
2002
2050
2002
$ 3,492
2012
$10,497
2023
$ 25,...
THANK YOU…
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International forum on financial systems v5 11.09.2013

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  • Wehavecarriedoutbankingsectorstresstests since 2004.In2006, weinitiatedthe12% objectivecapitaladequacyratioapplication (Basel II, 8%).In 2009, with the amendment made to Decision No. 32, we prevented the household to take currency risk by prohibiting foreign currency loans. We reduced the interest risk of the household.18 Haziran 2011(Resmi Gazete): Finansmanşirketleri Mart, Haziran, Eylül ve Aralıkdönemleriitibarıylakonut ve taşıtkredisidışındakitüketicikredileriiçinkreditutarınınyüzde 4’ü oranında, anapara, faizveya her ikisinintahsilinde 30 gündenfazlaancak 90 gündenazgecikmeolanbuniteliktekikredileriçinkreditutarınınyüzde 8’i oranındagenelkarşılıkayırırlar.”
  • International forum on financial systems v5 11.09.2013

    1. 1. International Forum on Financial Systems Istanbul, Sept. 11, 2013 Mehmet Şimşek Minister of Finance
    2. 2. Outline Importance of Macro-Financial Stability • The Global Financial Crisis Experience How to achieve Macro-Financial Stability? • Global & Domestic Solutions Turkey’s Structural Reform Agenda & Long-Term Prospects 2
    3. 3. Importance of Macro-Financial Stability The Global Financial Crisis Experience 3
    4. 4. Pre-Crisis Background Loose Monetary and Fiscal Policies Global Macro Imbalances Financial Deregulation & Innovation Greed & Reckless Risk-Taking 4
    5. 5. Loose Monetary Policies (US) Source: Bloomberg -1.00 -0.50 0.00 0.50 1.00 1.50 2.00 1990-1 7 1991-1 7 1992-1 7 1993-1 7 1994-1 7 1995-1 7 1996-1 7 1997-1 7 1998-1 7 1999-1 7 2000-1 7 2001-1 7 2002-1 7 2003-1 7 2004-1 7 2005-1 7 2006-1 7 2007-1 7 5 RealPolicyInterestRate(%)
    6. 6. Loose Fiscal Policies (US) Source: IMF 6 -6 -4 -2 0 2 -600 -400 -200 0 200 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Budget Balance (billion $) Budget Balance/GDP (%, right axis)
    7. 7. ‹#›
    8. 8. Expansion of Asset Price Bubbles Loans Used by People who were unlikely to Pay Back Opaque Transactions Converting Real Estate Loans into Marketable Securities Incorrect Pricing of Risk Asymmetric Information Problems Lack of Effective Financial Audit Financial Deregulation & Innovation 8
    9. 9. Greed & Reckless Risk-Taking Source: IMF * Albert Einstein 9 198.8 244.4 190 200 210 220 230 240 250 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 USBankingSectorLoans(%,GDP) Three forces rule the world: stupidity, fear and greed*
    10. 10. Impact of Global Financial Crisis 10
    11. 11. Worst Crisis Over the Past 60 Years -2,0 -1,0 0,0 1,0 2,0 3,0 4,0 5,0 6,0 7,0 8,0 1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 GlobalGrowth(1950-2012,%) Source: IMF, WEO Jul-13 Global Financial Crisis 11
    12. 12. Unemployment 31.8 million people have lost their jobs since 2007 due to the effects of global financial crisis 12 Soup Lines
    13. 13. Source: IMF, OECD 13 DebtStock/GDP(%) Public Debt 67.2 66.4 74.5 106.5 92.9 108.8 50 60 70 80 90 100 110 120 USA Eurozone OECD 2007 2012
    14. 14. Money for Nothing? 14
    15. 15. Fed Balance Sheet ($ bn) Source: Bloomberg 909 3,654 700 1,200 1,700 2,200 2,700 3,200 3,700 4,200 12/5/2007 6/5/2008 12/5/2008 6/5/2009 12/5/2009 6/5/2010 12/5/2010 6/5/2011 12/5/2011 6/5/2012 12/5/2012 6/5/2013
    16. 16. ‹#›
    17. 17. ‹#›
    18. 18. ‹#›
    19. 19. How to achieve Macro-Financial Stability? 19
    20. 20. Globally 20
    21. 21. Financial Regulatory Reform Addressing sustainability, enviro nmental & social governance Regulation Euro Area Banking Union Basel III Supervision European Supervisory Authorities The European Systemic Risk Board 21 International Framework Coordination Financial Stability Board Impact Investment Creating positive impacts beyond financial returns Financial Literacy Layman & Senior Managers
    22. 22. Financial Regulatory Reform Promoting market efficiency & productivity Channeling financial assets away from speculative capital Promoting investments that generate jobs and sustainable development Supporting fairness & social equity 22
    23. 23. Euro Area Banking Union Accountable banking supervision Credible backstops Minimizing conflicts of interest Development & implementation of Basel III Countercyclical capital buffers Additional loss absorbency for systemically important banks 23 More Effective Regulation
    24. 24. More Effective Supervision 24 • The European Banking Authority • The European Securities and Markets Authority • The European Insurance and Occupational Pensions Authority Supervisory Authorities • Assess financial stability risks and issue warnings & recommendations when necessary Systemic Risk Boards
    25. 25. More Effective Coordination 25 Financial Stability Board Coordinate the work of national financial authorities and international standard setting bodies Develop and promote the implementation of effective regulatory, supervisory and other financial sector policies
    26. 26. Resolve social or environmental challenges while generating financial profit “Amount of capital allocated to impact investment could grow to USD$500 billion within five to ten years, which would represent 1 per cent of global assets under management. ”* 26 Impact Investment *International Institute for Sustainable Development
    27. 27. Increasing Financial Literacy Teaching basic knowledge & understanding of financial matters to all agents in the economy Minimizing the knowledge gap between the quants and decision makers 27 “The realities of day-to-day market pressures make idealized relationship between senior management and research a fantasy”* * Andrew W. Lo, “Hedge Funds, Systemic Risk, and the Financial Crisis of 2007–2008: Written Testimony for the House Oversight Committee Hearing on Hedge Funds,” November 13, 2008, p. 27
    28. 28. An Alternative Model for a More Equitable, Stable and Sustainable Financial System 28
    29. 29. Islamic Finance Sharing loss makes the system more resilient No credit derivatives No lending for speculative positions Islam tames greed 29
    30. 30. TURKEY 30
    31. 31. Impact of Global Financial Crisis Not a single penny spent on bank bailouts Experienced a temporary recession Swift recovery with no permanent damage 31
    32. 32. Real GDP Source: TURKSTAT, Eurostat, BEA 32 165.2 121.0 109.3 90 100 110 120 130 140 150 160 170 2002-Q1 Q3 2003-Q1 Q3 2004-Q1 Q3 2005-Q1 Q3 2006-Q1 Q3 2007-Q1 Q3 2008-Q1 Q3 2009-Q1 Q3 2010-Q1 Q3 2011-Q1 Q3 2012-Q1 Q3 2013-Q1 Turkey USA Euro Zone Japan 109,2 RealGDP(2002Q4=100,s.a.)
    33. 33. Factors that helped Turkey weather the Crisis Political Stability Price Stability Sound Fiscal Position Lower Public Debt Well-Capitalized Banking Sector Low Household Leverage Moderate Corporate Leverage Flexible Exchange Rate A good macroprudential framework 33
    34. 34. Political Stability 34 15 Months 124 Months 0 20 40 60 80 100 120 140 Average Lifetime of Governements during 1950-2002 AK Party Governments Since 2002 1923-2002 Average Lifetime of Governments : 17 months 2002-12 Political Stability 2023 Targets
    35. 35. 35 Price Stability We Reduced the Inflation Rate to Single Digit Source: TURKSTAT 107.2 125.5 99.1 6.2 6.2 5.0 5.0 0 20 40 60 80 100 120 140 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
    36. 36. 10.8 7.9 4.1 0.1 -1.3 0.2 1.6 5.5 3.0 0.4 1.0 1.5 1.2 0.9 -2 0 2 4 6 8 10 12 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Maastricht Criteria: 3% Medium-Term Program (2013-15) Achieved Maastricht Criteria except 2009 Source: Ministry of Development Gen.Gov’tBudgetDeficit-to-GDP,% 36 Strong Fiscal Position
    37. 37. 74.0 67.7 59.6 52.7 46.5 39.9 40.0 46.1 42.3 39.1 36.2 35.0 33.0 31.0 30 35 40 45 50 55 60 65 70 75 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Medium-Term Program (2013-15) Lower Public Debt Debt-to-GDP,% Satisfying Maastricht Criteria since 2004 Maastricht Criteria: 60% Source: Treasury 37
    38. 38. Well-Capitalized Banking SectorCapitalAdequacyRatio,% Target Rate 12% Legal Rate 8% Source: BRSA Capital adequacy ratio twice the minimum legal limit of 8%. 15.93 0 5 10 15 20 25 30 35 2003-1 5 9 2004-1 5 9 2005-1 5 9 2006-1 5 9 2007-1 5 9 2008-1 5 9 2009-1 5 9 2010-1 5 9 2011-1 5 9 2012-1 5 9 2013-1 5 38
    39. 39. Low Household Leverage Source: CBRT, ECB * Financial Stability Report, 2013, CBRT (HouseholdLiabilities,%ofGDP,2012) 39 65.5 21.2 0 20 40 60 80 100 120 140 160 Denmark Netherlands Ireland United Kingdom Portugal Sweden Spain Euro area Finland Greece Malta Germany France Belgium Luxembourg Austria Italy Estonia Poland Latvia Czech Republic Hungary Slovenia Slovakia Lithuania TURKEY Turkish HHs do not have FX exposure But net FX holdings of $190bn*
    40. 40. Moderate Corporate Leverage 40 39.2 34.1 0 20 40 60 80 100 120 Luxembourg Spain Portugal Netherlands Ireland Denmark Italy Slovenia Austria Sweden Greece France TURKEY Latvia Estonia Germany Finland Average Belgium United Kingdom Hungary Lithuania Slovakia Czech Republic Poland (Corporateliabilities,%,GDP) Source: CBRT, Cetinkaya, March 2013, BRSA
    41. 41. Flexible Exchange Rate Source: CBRT REER(2003=100) 41 55 65 75 85 95 105 115 125 135 1989-1 7 1990-1 7 1991-1 7 1992-1 7 1993-1 7 1994-1 7 1995-1 7 1996-1 7 1997-1 7 1998-1 7 1999-1 7 2000-1 7 2001-1 7 2002-1 7 2003-1 7 2004-1 7 2005-1 7 2006-1 7 2007-1 7 2008-1 7 2009-1 7 2010-1 7 2011-1 7 2012-1 7 2013-1 7 1990’s average 2000’s average
    42. 42. A good macroprudential framework 42
    43. 43. Institutional Framework 43 Financial Stability Committee • Effective & timely implementation of policies affecting the financial sector Economy Coordination Board • Monitoring and evaluating the issues concerning overall economic stability Others • Treasury • Ministry of Finance • Capital Markets Board • Central Bank of Turkey (CBTR) • Banking Regulation and Supervision Agency (BRSA)
    44. 44. Macro-Prudential Framework 44 A Macro-Prudential Framework: Short, Medium and Long-Term Policies Short-Term • Reducing exchange rate volatility Medium- to Long-Term • Increasing domestic savings • Promoting international competitiveness
    45. 45. Banking sector stress tests since 2004 A 12% target CAR since 2006 Limits on dividend distribution since 2008 A ban on HH FX borrowing since 2009 An LTV ratio of 75% on mortgages since 2011 Macro-Prudential Framework 45
    46. 46. Turkey’s Structural Reform Agenda & Long-Term Prospects 46
    47. 47. Turkey’s Structural Reform Agenda Combatting Shadow Economy Enhancing Competition Deepening Capital Markets Education Improving Labor Market Flexibility Local & Renewable Energy Infrastructure Moving up the Value-Chain Narrowing Regional Development Gaps 47
    48. 48. Determinants of Long-Term Growth Quality of Institutions Demographics Productivity 48
    49. 49. Improving Quality of Institutions Doing Business Corruption Perception Index Global Competitiveness Index Human Development Index OECD-FDI Regulatory Restrictiveness Index Past Present 2023 Source: WB, WEF, Transparency International, OECD 49
    50. 50. Favorable Demographics Source: Eurostat Shareof15-24yearsoldinTotalPop.(%) 16.8 7 9 11 13 15 17 19 21 Andorra Italy Greece Spain Portugal Germany Slovenia Ireland Bulgaria Luxembourg Switzerland Croatia Czech Republic Austria Liechtenstein Serbia Hungary Netherlands Finland France Denmark United Kingdom Norway Sweden Estonia Ukraine Malta Poland Latvia Slovakia Montenegro Lithuania Iceland Macedonia Georgia Turkey Moldova Azerbaijan 50
    51. 51. 2.0 1.0 0.3 0.7 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 Turkey USA EU-27 OECD AnnualAveragePopulationGrowthRate (%,2001-11)Growth Rate of Working-Age Population Source: OECD, Eurostat, TURKSTAT 51
    52. 52. Long-Term Targets: GDP Source: TurkStat, Medium-Term Program, PwC 2002 2050 National income $ 230 billion in 2002… National income $ 5 trillion by 2050… National income $ 786 billion in 2012… National income $ 2 trillion by 2023… 52
    53. 53. Long-Term Targets: GDP per Capita Source: TURKSTAT, Medium-Term Program,PwC 2002 2050 2002 $ 3,492 2012 $10,497 2023 $ 25,000 2050 $ 50,000 53
    54. 54. THANK YOU… 54

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