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MEHMET Y R KOGLU CENTRAL BANK OF TURKEY DEPUTY GOVERNOR

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MEHMET Y R KOGLU CENTRAL BANK OF TURKEY DEPUTY GOVERNOR

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    2. 2 Reasons behind the turbulence, Measures taken so far Impacts of the turmoil on; III.1. Emerging markets, III.2. Turkey; IV. Prospects.

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    4. 4 What triggered the crisis? Increased delinquency rate in sub-prime mortgages and therefore decline in mortgage-backed securities (MBS). Big exposures of financial institutions which also have high leverages to these MBS. Increased risk appetite in the face of low real interest rates Creation of complex financial instruments in search of higher profitability Originate to distribute model and extensive use of off-balance sheet instruments Imprudent credit decisions Erosions of capital due to financial losses Cut back in loan supply

    5. 5 Uncertainty in financial markets transformed into a trust problem between financial institutions In spite of correcting actions of regulatory bodies, arising financial weaknesses of large financial institutions such as Lehman Brothers, Bear Stearns, Merrill Lynch, Fannie Mae, Freddie Mac, Washington Mutual Fund and AIG.

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    7. 7 Coordinated response of Central Banks by providing liquidity support Bail outs from U.S. and European governments Intervention of US government by its fiscal policy Capital injection and assets expansion by accepting as collateral, Encouraging some banks to fund the troubled banks by secured funding, Paying interest on depository institutions required and excess reserve balances (by Fed), Guarantee on bank deposits and/or other liabilities in USA and Europe

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    10. 10 Banking and Financial Sector Capital Inflows and Current Account Deficit Economic Activity Exchange Rate and Inflation

    11. 11 Until now, limited effects on banking and financial sector due to, Considerable improvement in macroeconomic stability, Prudent macroeconomic policies, Conservative Regulation and Supervision, Tools used by Central Bank of Turkey to calm the markets, such as reintroduction of FX deposit market, Tight fiscal policy and monetary policies.

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