The Bank for International Settlements is a powerful behind-the-scenes institution. Based in Basel, Switzerland, it is more than just a bank; it is a think tank relied upon by central banks, and the global financial and political worlds as a whole. Handelsblatt’s Torsten Riecke and Holger Alich met with General Manager Jaime Caruana and Claudio Borio, Head of the Monetary and Economic Department to talk about its new annual report and how it guides global banks.
Handelsblatt: In the new annual report you describe the difficulties of policy makers who deal with the repercussions of the financial crisis. Is Greece the perfect example of their helplessness at the moment?
Jaime Caruana: We know that these are very complex issues. The important thing is to find a solution that is sustainable. It is also important to continue with reforms. We have to make sure that we remove all the impediments to growth. That is a lesson not only for Greece but for all countries.
If Greece has to exit the euro zone what would be the contagion risk to other countries?
Mr. Caruana: The resilience of the financial system is now considerably greater than it was a few years ago. On the other hand, we should not be complacent. There is always the risk of a shock to the financial system.
Mr: Borio: We have to keep in mind that today it is mostly governments that hold the debt. This provides more room for maneuver and reduces uncertainty about the possible consequences.
Mr. Caruana: One big risk at the moment is low liquidity in some financial market segments, lower than in the past. This could lead to more volatility from time to time. Financial institutions need to be well aware that liquidity might not be there when it is needed.