Session 3: focus on central banking
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Friedman, Benjamin
Bini Smaghi, Lorenzo
Demetriades, Panicos
What place is there for central banks in the era of “we first”? Is central bank independence obsolete? If not, how can it be upheld? How can the public’s understanding of the role of central banks be improved?
 I'm introduced by Professor Friedman, who is the William Joseph Meyer Professor of Political Economy at Harvard University. He will speak for around 20 minutes. And then 25. 25, okay. You're credit. And then as a discussion we have first Lorenzo Viniz Maghi, who has been a professor of economics, who has been previously of this parish as an executive board member and now is the chairman of Societe Generale, and then Panicoz de Matriales, who is from University of Leicester, but also previously a governing council member as the governor of the central bank of Cyprus. We'll both intervene for seven minutes and I think that's the agreement we had and we need to finish on time, so I would really urge you to be as concise as you can. But Professor Friedman, let's start with you. Thank you very much for Donando. It's an enormous pleasure to join in honoring Ignacio on this occasion. Ignacio is a person who uniquely has made two quite different contributions to this extraordinary institution. Both last night and already this morning we've heard a lot about Ignacio's contributions to the realm of bank supervision and regulation. I won't need to elaborate those, but let me remind everyone that Ignacio was here before and at a very crucial period together with several other people, I think for example of Atmar Ising, I think for example of Tomaso Padua-Shiopa. Ignacio played a fundamental role in devising the monetary policy strategy of the ECB. This was an enormous contribution for which not just everyone at the bank, but everyone in Europe should be grateful. So, Ignacio, congratulations to you on your two sets of extraordinary accomplishments and it's a great pleasure to join in honoring you today. Now I want to talk about implications of the current populism for central banks. I want to make three sets of introductory remarks. First, I want to say why I do not regard what we are seeing today in many of our countries, my own included, as genuine populism. Think of it as Erzat's populism, so-called populism, I want to say why. Second, I want to use just a few examples from my own country to indicate that the adversarial relationship between populism and central banks is nothing new. There is a very long history of this kind of adversarialism and I see no reason to expect it to abate. And third, I want to address the question of whether the problems that stand behind the current so-called populism are of central banks making. The conclusion I'm going to offer is that it doesn't really matter. Central banks frequently have to deal with problems that they have not created and I think this is one. Then I want to go on and address in turn a series of areas of central banking responsibility, monetary policy, supervision and regulation, last resort lending, and finally the governance and legitimacy of central banks and consider each in turn to establish whether today's so-called populism has already created problems for central banks, but to contemplate whether it will in the future even if it hasn't already. So first place, why do I not regard this movement in so many of our countries today as legitimate populism? To be sure, today's agitation shares a number of features with legitimate historical populism. There is the resentment of perceived elites, or we have to be very careful because the notion of who is and who is not among the elite is very much in the eye of the beholder. And my sense is that the elites who are resented today are very much those associated with education and expertise and this of course has a bearing on central banks and central banking. There is the antipathy toward established authority in many of our countries. This takes a variety of forms playing out not merely in the political arena. There is a disaffection from the established political parties in many of these countries and of course that has different implications in different countries. In many European countries, Germany for example, it's relatively easy to start a new political party. In my country it's almost impossible to do that. Had Trump been German, he presumably would have started something like the AFD in the United States. That's difficult and so instead he did a hostile takeover of one of the existing political parties. Not that that was easy, but it was easier than trying to create a new party. And then finally, and I would say most regrettably, one of the features that today's so-called populism shares with genuine populism throughout history and in many of our countries are the ugly pathologies ranging from nationalism, nativism, xenophobia, racism, religious bigotry in all of our countries, both the movements and the political parties that have indulged in populism all willingly wallow in these pathologies. And no one knows where this will go and how far it will proceed, but in many of our countries we all know where this has led in the past. Now if all of these features of today's agitation are in common with historical populism, why then do I not regard this as legitimate populism? And the answer is that today's populists in most of the countries that I am aware of have no serious program for taking initiatives that would redound to the benefit of economically disadvantaged citizens. And at least historically that has been the core of populism in one country after another. This is not to say that the measures that populists have historically advocated have uniformly been correct or that they would have, if adopted, have had the effect that they were intended for them. Many of these countries' populist groups historically have favored misguided policies. Nonetheless, there was at least something there. And my survey of the countries in Europe and in my own country today is that there is simply no serious program. And I think that's a great difference from historical populism. And it's also fair to say that today's populists are attacking the central banking community here I have in mind, especially monetary policy, making from the opposite direction. Historically, populism has been opposed to tight money policy. Today, many of the so-called populists are opposed to easy money policy. Now, I don't want to spend too much time on the minutiae of my own country's financial history, but I would just like to, perhaps the slide speaks for itself. We have had many, many examples of the interaction between populism and central banking in my country. We had a central bank very early under Alexander Hamilton. That was the Bank of the United States in 1791. It was allowed to go out of business when its 20-year charter expired in 1811. Simply, they didn't have enough votes in the Senate to renew the charter. Many of us think of Jefferson in a positive light, but I certainly do. But one of Jefferson's great mistakes was to oppose the renewal of the first bank charter. There was then a second central bank, started in 1816. The charter ran out 20 years later in 1836. This time, they had the votes to renew it and did in the Congress, and Andrew Jackson famously vetoed it. It was the leading issue in the second term of Jackson's presidency. My country then went for three fourths of the century without a central bank, not because no one ever thought of creating a third one. Many people did, but there simply wasn't enough support. Then in the 1880s, in the 1890s, we had what we regard in the United States as populism with a capital P. That is, there was actually a populist party in which people like William Jennings Bryan famously opposed the gold standard. What many people don't remember, however, is that Bryan was not just a populist. When he ran for president in 1896, he ran as a Democrat. The famous cross of gold speech was his acceptance speech, accepting the nomination nomination of the Democratic Party for president when he ran at the nominating convention in Chicago. Then there was Wright Patman, the great leader, chairman of the House Banking Committee throughout the 20s and 30s, and on into the 40s, who took great pride in having run Andrew Mellon out of office as the secretary of the treasury. For people who are not familiar with the history, Wright Patman's most famous economic proposition was that the way to fight inflation is to lower interest rates. I'll say that again. The way to fight inflation was to lower interest rates because high interest rates were a cost of doing business for indebted companies, and the company would have to pass that cost along in the price it chose in the product market. Eerily in the United States, we are now hearing some echo of Wright Patmanism. Paul Volcker had a running battle with a Texas firm called Lone Star Industries in the construction business when Paul finally broke the back of American inflation. For those old enough to remember, Lone Star Industries used to run full page ads in the Wall Street Journal once a week criticizing Paul Volcker personally and his policies. By coincidence, I happened to be working at the Board of Governors of the Federal Reserve in the summer of, I think, 1979, when this enormous truck pulled up in front of the building, not on the Constitution Avenue side, but at the C Street side, and there was this enormous flatbed truck full of lumber sent to Paul personally as Chairman of the Federal Reserve. The note that came with it said, Dear Paul, here, I can't use this anymore. You take it. This was Lone Star Industries protest against policy. Then I deliberately picked two examples to indicate that this is not necessarily a partisan thing. There have been Democratic populace and Republican populace. Now, finally, by way of introduction, I want to say something about whether the problems that are fueling today's populism are of central banks making. My answer is mostly no. We are all familiar with issues like slow productivity growth, widening inequality in America, increasing poverty. In Europe, you don't have poverty because you avoid that, but we don't. We do have poverty. Strains from globalization. We're all familiar with these phenomena, and they are not of central banks making. Nonetheless, I think central bankers would be too complacent to think that they have played no role. The place to begin is that the fiction that we all endlessly repeat that monetary policy is distributionally neutral is just that. It is a fiction. And regardless of how many times we proclaim it, it turns out not to be true. Almost all elements of monetary policy, whether interest rate policy, asset purchase programs, last resort lending, all have very significant distributional effects. And in many countries, these distributional effects are part of what today's anti-central bank crowd objects to. Now, there's a legitimate analytical question of whether central banks' emphasis on price stability has stunted economic growth. I won't go into this issue. One could have an entire conference on that. In short, the analytical question turns on whether there is either an actual or a perceived non-linearity in either the Phillips Curve relationship or in central bank preferences. Either one, if the asymmetry goes in the non-linearity goes in the right direction, either one would mean that an emphasis on price stability stunts growth. Again, there may or may not be such a bias. And finally, here in Europe, my sense is that part of the problem is that for reasons we all can't understand, the ECB has allowed itself to become part of the enforcement mechanism of the process whereby reckless lenders in the northern countries, instead of taking their losses exploit financially and economically the borrowers in the southern countries. And I think this is a very unfortunate role for any central bank to play. Either way, however, whether the central banks themselves are the cause of the problems that are fueling today's so-called populism doesn't matter because frequently central banks have to deal with problems that are not of their own making. So now let's do a quick review of the state of play in these four areas of central banking. First, classical monetary policy. At least in most of the countries that I follow carefully, I would say that there has not yet been any distortion of the interest rate setting policies of central banks coming from populist pressure. Now the one area in which I think there would be pressure would be if central banks were to try to coordinate their policies internationally. As I'm guessing everybody is aware, however, it is not at all clear that central banks should actually do this. There is a very large and well-developed literature of coordination of monetary policies internationally. And I think the fair estimate is that that literature has been and will remain inconclusive. And therefore, whether today's movements would prevent such an effort by central banks is not at all clear. On balance sheet policy, however, the story is very different. And already in many countries there has been enormous opposition from exactly the quarters that we're discussing to the asset purchase programs. And in part, this has come from fallacious, old-fashioned, monetarist reasoning. We all know economists. We all have dear friends who embarrassed themselves and embarrassed us by pointing out that if the central bank multiplies the size of its balance sheet by three or four or five within some short period of time, this would of course lead to a trebling or a quadrupling or a quintupling, not just of the inflation rate but of the price level. This was of course never to be believed in the first place, but some people did believe it and worse yet some people said it. It of course turned out to be wrong. This fallacy is not identical to populism, but historically there has been a strong affinity between populist movements and crude monetarism. I don't think anybody has explored why this is true. Fixation with currency arrangements has been a staple of populist thinking for the last two centuries and so there is something there. What is valid to repeat from before is that these programs have had and continue to have significant distributional implications and people don't like that. How about challenges to supervision and regulation? At least viewed from an American perspective, I would say not yet. Not yet. But there are grounds for concern. I leave it to my two colleagues on the panel to say whether that conclusion would hold for Europe. But there are grounds for concern. One ground for concern is the potential for the kind of political financial corruption. I don't mean indirect corruption. I mean capital C corruption that we have seen many, many times. The poster child was Charles Keating a few decades ago who paid five senators to block regulators from enforcing the rules on him. But I think in many forms the current situation runs great risks. In the United States we now have the frightening situation in which the elected chief executive of the country identifies specific businesses and specific businessmen as enemies of the people. Now to date American bankers who have a historical memory comparable to that of the fruit fly have not reacted. But this is I think a failure of historical understanding. I am guessing that anybody in this room is quite prepared to recall the idea that the enemy of the people could be the banks and the bankers. And by extension the enemy of the people could be the central bankers. Think about what it would mean for example if the next president of the United States used the phrase failing city bank as frequently as our current president uses the phrase failing New York Times. Think about what it would mean in the market if the next president were to use the phrase fake money JP Morgan as frequently as the current president uses the phrase fake news CNN. This is not outside of the bounds of possibility. Finally here in Europe and again I defer to my colleagues there is the anomaly of this single supervisory and resolution mechanism of which I hope everyone in this room is justly proud viewed from afar. This is a marvelous achievement and not see how I again congratulate you but I congratulate European the European community more generally. But the problem is there is no money behind it. There is no there is no serious EU money behind this and we shall see whether that turns out to be a problem. Third on the list what about last resort lending. This has already happened. We don't have to speculate in the United States. This has already happened. Section 1101 of the Dodd-Frank Act amended section 133 of the Federal Reserve Act so that much of what the Federal Reserve did to stem runs during the crisis cannot now be done without a signed permission slip from the Secretary of the Treasury. One could of course say why does this matter because the Secretary of the Treasury would of course grant permission. I think this is not at all this is not this is not at all guaranteed. One could also say that this doesn't matter because the amendment to section 133 did not apply to banks. It only applies to non banks. This is not comforting. There's something somewhere between 10 and 13 trillion dollars of runnable short-term liabilities owed by U.S. domiciled institutions that are not banks and therefore that are now excluded under section 1101 from exactly the kind of lending that the Federal Reserve did during the last crisis. What about Europe? Well I defer to my colleagues on the panel. Finally what about the broader issue not of policy making but of the governance and legitimacy of central banking? As Paul Tucker among many other people have pointed out there are generic concerns on political theory grounds for the legitimacy of any kind of quasi independent policy making institution and central banks may be the only maybe the most obvious example but they are not the only example. I think however that both in my country and here in Europe there are some very specific vulnerabilities of the central bank that go beyond the usual political theory issues. The Federal Reserve system is a very peculiar animal. I won't ask for a show of hands on how many people know this but it turns out that the Federal Reserve banks not the board but the banks are privately owned. They are owned by the commercial banks. Now most of us in this room would know that this matter is not one iota it just doesn't matter but if you go to the kind of websites that the current quasi populist movement inhabits and go to Federal Reserve what you will find is the statement that the fact that the Federal Reserve banks are owned by the share owners surely means that their role is to act into the profit making interest of their share owners that's what entities that are owned privately do. These are the same websites that populate the usual or inhabit the usual populist space they will assure you that they will assure you that Jay Powell is a Jew there is the whole range of standard populist pathologies. It also turns out that the boards of directors of these privately held banks are two-thirds of them consist of bankers and worse yet it turns out that the boards of directors of these privately held Federal Reserve banks select the presidents of the banks who in turn without any confirmation from the U.S. Senate serve in policy making capacities on the Federal Open Market Committee. We may not take this seriously at all but it is a real vulnerability. And the last comment on my own country's situation is that the congressional oversight of Federal Reserve policy has been historically weak and continues to be so. This matters because under Article 1 Section 8 of the U.S. Constitution it's very clear that the monetary policy power is delegated to the Congress and so everything that the Federal Reserve does it does by delegation from the Congress and is certainly subject to oversight by congressional authority. Here in Europe I think the issues are somewhat similar and somewhat different. An American perspective is that part of the ECB's political problems stems not from anything specific to the ECB but to the top down I'll say non-democratic instead of anti-democratic character of the European project as a whole. I would hope that even in a room of Europeans most people are aware of the opening words of the U.S. Constitution. It famously starts off we the people meaning that the power that created this new republic came from the people. Do people recall the opening words of the proposed European Constitution that eventually was not adopted? I'm seeing lots of blank stares and so I would have thought the European. It started off His Majesty the King of Belgium. Well this is an issue. It started off His Majesty the King of Belgium because the conceit was that instead of the American example in which the power from which this new republic sprang was the people the European Union was a project that was being granted by the not just the heads of government the heads of state of the member countries and they were listed in alphabetical order and so the first person up in Tibet was the King of Belgium. Well one could go on in this vein but the difference between a bottom up and a top down union is very clear and I think this is of course not the ECB's fault but the ECB is collateral damage in this battle. Part of the problem of the ECB I think that is shared by the with the Federal Reserve is the absence of effective oversight. I understand that there are hearings at which the president of the ECB testifies in Strasbourg or Brussels or wherever it happens to be taking place. This is no comfort. There are hearings at which the chairman of the Federal Reserve testifies before the relevant congressional committees and this is not very impressive. And finally here at the ECB in problem that you have that we don't do not is the complete non transparency of the appointment process. In the United States for better or worse candidates are appointed by the president and that's what it is. Whereas here because of the multi the multi-country aspect there is a behind the scenes horse trading aspect to ECB the ECB appointment process which runs against the grain of today's so-called populism or any populism. Let me conclude by again saluting you Ignacio. You have been you are a great friend whom we all admire respect love. You have been you are a great civil servant who's shown that there is such thing as integrity and it is possible to live a life in the public sphere with integrity and you have been and you are a great European patriot. So I salute you for all of those and to quote Cicero Aveyaque Walle. Well I will start by by first thanking Ignacio for for inviting me to this conference. In fact you didn't really invite me you summoned me to this conference saying that I won't say exactly what you said but being being my supervisor I of course I was I was forced to come. No I would say because he said well it's partly your fault if I'm here you have been here which is true. We've been known each other for many years since I joined the Bank of Italy. We were together at the Monetary Policies of Committee chaired by Lucas. I don't know how you Lucas saw the two of us working together but certainly I learned a lot from Ignacio and then I was at the European Monitoring Institute for four years and with many people that are in this room when the ECB started I thought for personal reasons I wanted to go back to Italy and I went to talk to Tomas of Paverschiopa saying listen I think I should go back to Italy for several reasons. I said you're crazy. There are already very few Italians if you live. The only way to live is if you get somebody smarter than you and even if he's Italian at least there would be no doubt that there are problems of nationality just go and find if you can. So I thought who can be really smarter than I am and after five minutes I called Ignacio and I talked him into that. I don't know if in the end it worked out I think for you and it worked out for me in spite of my ego I could accept. I think it was something good for ECB and for the SSM. So this is to say that I have a lot of affection for you and I think we worked together very well. I think Ben Friedman's speech and paper was very interesting. I think you didn't mention one thing which was why did Andrew Jackson not renew the photo. The interesting thing and I mentioned this to Mario Draghi. He said after 20 years you have become too powerful which is a way to say you're the only game in town we would say today and so it's better to get rid of these unelected politicians, unelected technocrats because they have too much power and this is one of the risks. I will come back to that later on. The other comment I would mention is try to resist when you come from the US reading European integration only through US history. You mentioned that the appointment of the Federal Reserve Chairman is transparent because the president decides. It's a kind of a strange concept of transparency. Through that here we are not that transparent but at least we know that I think we rely as Jean-Claude Trichet would say on the wisdom of the state and which is more or less relying on the wisdom of Mr. Trump. So maybe just going do I have my presentation on? No? Oh there's no presentation. Okay so we didn't work out well together but this is the first time. In any case so don't worry. I had only a couple of small things. I want to mention is I think we have a good basis for understanding independence of central banks for monetary policy. There is a lot of literature, there is a lot of empirical evidence comparing the Bundesbank with other central banks. We have actually the experience of the ECB until the crisis. I think until the crisis was something that few people would criticize. But with the crisis I think there are much more questions and one of the issues is that we have not been able to achieve really price stability. We are struggling. Inflation is still below the 2%, much below, much more below. Growth is still fragile. There are inequalities and some people would say that the way in which monetary policy has been implemented. Now don't worry, it doesn't matter. It doesn't matter. I mean my presentation had only a couple of slides. So the issue has come back to the fore. I mean and I would want to mention a couple of issues that are key in maintaining independence. But to be sure central banks have become more powerful after the crisis. Because they are the only game in town, they have adopted new instruments and they have become more responsible on supervisory issues. And this is not true only in Europe. It's true for the Fed. It's true for the Bank of England who got back supervision. And so the issue of independence for supervisors is even more important. But it is in my view in spite of the contributions that have been made in the literature, it has less of an analytical framework to support it. Second, what is key in my view in the central bank independence from monetary policy, which is a key objective, price stability, then even in the U.S. framework in the end it can be interpreted as in any case monetary stability. In the supervisory aspect it is financial stability. And you could actually if you read the mandate of the ECB, it's banking stability of the banking system as you read this morning, but you have also integration of the European banking system. And that's a much more complex element to assess and to calibrate what is banking stability. And can you really identify a result as being a good result or a bad result as you can with inflation is much more complicated. And I think this morning, the other element is that there is no trade-off in the long term for monetary policy, inflation and growth. This whole concept that you can separate inflation and growth is that there is no trade-off. And you can ask yourself, is there a trade-off, at least for some time, between financial stability or banking stability and growth, for instance? This morning, you mentioned that in the end the decision on the appropriate risk return characteristic of the banking system is up for the politicians to decide, for the legislature. The problem that I, and then you said the politicians, the people, and the people are made of taxpayers and depositors. Well, I would say it is a bit more complicated in my experience. First, people hold deposits, but they hold many other financial assets. And the people who go to Philippe to get not zero return, they want return. And Philippe mentioned this morning he will not invest in banks unless they have a good return on capital, in particular unless they have a return on capital which is higher than the cost of capital. So in the end, the trade-off that you have in society is also in our society, which is very wealthy, has a lot of wealth. In the end, it is also made of people who want to have a remuneration on their own savings, a high remuneration. And so if you are not able to deliver, in the end, they will disinvest from the banking system. And it has a nice chart here, but it doesn't matter, you can imagine it. If you compare this morning it was mentioned, the capitalization of banks in the US and Europe, you see a clear bifurcation. And if you see what is the consequence of that, well, if you look at credit to the real economy, it's the same bifurcation. It's not as dramatic, it doesn't decrease in Europe. It's more or less in the end, we are in 2018, back to the levels of 2007, so credit has been stable. While in the US, it has increased by 40%. So the banking system in the US, the US which is not a bank-centric system, has increased dramatically in Europe, which is a bank-centric system, credit has remained constant. It's very efficient here in real time. So this, as a society, you have to ask yourself, do I have the right combination of risk return? And my regulatory framework, is it appropriate for the kind of growth that you need to support the economy and to fight populism? Because in the end populism emerges if you don't have growth. Let's see, yeah, that's very good, very efficient. Yeah, I wanted just to show you because I want to... So credit to the real economy, the red is the eurozone and the gray is the US. The smart ones of you would say, but this is the man determined, but then I show the market financing. And you see that the red, even though the capital market in Europe is smaller, you've seen how much it has grown. So the demand was very strong for financing, and therefore the hypothesis that this bad performance in Europe was partly due to the supply side. So to a weak banking system cannot be really rejected, I think, or it has to be taken into account. So in light of what we have, maybe we have to consider whether this tradeoff really between growth and stability is the appropriate one. And over time, this is a risk, I will mention this. This is a risk to the independence of the regulator and of the ECB. Let me conclude the final point. What are the main risks again to independence in Europe? Well, in Europe there is an additional dimension, I think, which is trust that the institutions are doing what they do for the interests of Europe, not of the various national countries. And I think Andrea mentioned this this morning. In my view, one of the greatest threats or greatest blows to independence is when the national authorities have started to distance themselves from the decision of the ECB. And I can think about two examples. One is 2010 on monetary policy, and the other is 2017 on supervisory issues. I will not give the details so that the Chatham House rule is not... These are two central banks who have distance themselves clearly from a decision on monetary policy, a decision on supervisory policy, who have given the impression that the decisions are taken for national objectives rather than a European objective. I think this is the biggest threat in Europe, and it is up to the central bank and the single supervisor to try to discipline and to try really to construct a cohesive mechanism so that the people where they in Italy or in Germany think that whatever decision is made is really made for the interests of Europe, not against them or in favor of somebody else. I think I gave enough hints for you to understand what were these two decisions. But I think this is the biggest threat. It is within the system, I think, because when you look at the overall results of monetary policy and even of supervisory, it has really been, I think, quite successful. It can always improve it quite so quickly. The main fear, I think, comes from the inside. So I hope your successors will be as wise as you in Gnacio in your job. Thank you very much. Well, thank you very much, Gnacio, for inviting me here. It's a great pleasure and an honor to be here, especially in this very distinguished audience, as well as my fellow panel members. I came across Gnacio fairly late on compared to the rest of you, which was 2012 when we started doing the work for the SSM. And I think largely the credit for the SSM being set up so quickly must go at least a lot of it to Gnacio. I just could not believe how much progress there was from one meeting to the next. Because Gnacio was reporting to us in formal dinners here in this building, top floor. And every few weeks, we had some massive manuals coming in, which really raised the question, how quickly are these people working? And of course, he was chairing that task force, obviously, a lot of credit to Gnacio for all that work. So what I'm going to do, in fact, in some sense, I'm very pleased because a lot of the things I was going to say have already been one way or another covered. But there are at least three issues that haven't been, and I want to sort of discuss a little bit. So clearly the presentation by Ben Friedman, absolutely outstanding, I could agree with nearly everything there. I have just a few points that I sort of take issue with. And one was the strong language at least he used when he described the ECB as a mechanism, part of the enforcement mechanism for financial exploitation by rescued creditors. And of course, we've seen it. I'm sure it's perceived like that in many countries, including my own country. That's how the ECB was perceived. And of course, I did try to explain, in fact, in the presence of her, the president and others in Cyprus that it's not like that. But I don't think I quite succeeded just to explain how the ECB has to play by the rules and in fact by the treaty and by, well, the law that is there to provide liquidity to banks in trouble. But then again, when you have a narrative created by a president which says the ECB put a gun on my head, I think people will kind of believe that that's true. A lot of people at least, right? So it is a perception which I would argue is wrong. But as I said, it's very hard to actually explain why it is wrong. Now, in terms of challenges to supervision and regulation, I think we have seen plenty in Europe a lot of challenges. And that's partly, I think, because we've started applying bail in. In fact, Cyprus was one of them, but also Slovenia, Spain, Portugal, etc. So every time there are investors who are hit, there is a reaction and there is, of course, a challenge. The pattern is a challenge to the estimates of the stress tests, be it the EBA stress test or whoever test stress test or is the National Central Bank stress test or whatever. There's always a challenge. And of course, this is where, I mean, many of us have been very careful with them, but nevertheless, it's inevitable. So partly because a bailout hides so many sins, right? A bailing doesn't hide them. And inevitably, you get the hit. And in the front line, it's the institutions that do that. And it has been in Europe, at least in the periphery, it has been the central banks. So it's been a big challenge. When it comes to a lending, yes, we've also had challenges. And in fact, Cyprus is another example there. We've had all kinds of police investigations. We had witch hunts. We had inquiries into this. And in fact, I do, this is if you excuse me, commercial break, is all in my book on the first book that I wrote on the diary of the Euro crisis in Cyprus. So there has been a lot there, a lot of challenge. Now, I would also argue that, you know, oversight, absence of EU oversight, I don't find it that obvious, right? That there is, and I don't see how you can square that circle. Yes, is it not enough to go to European parliament? Is it not enough to go to national parliament? Maybe not enough is happening. I mean, the SSM, as I understand, could and should go to national parliament. I don't think they've done it very much. But I think that's a practice that needs to be encouraged when it comes to supervision, not when it comes to monetary policy, which is common, obviously, but certainly when it comes to supervision. Right. I think the general problem is that I felt also during my short time as governor that you're very much an easy target, whether you want to call them populists or not, the politicians basically have access to the media. They have a natural following, right? They have basically groups behind them, interest groups, have helped them get across their messages, whatever they are. Settled banks inevitably cannot, need not, should not, perhaps, engage in political debates, right? But when the politicians are putting across fallacies or fake news, what do they do? Do you just sit there and allow that to continue? So you need to develop a strategy to cope with that. And I'm not saying you should respond to them, but there should be some form of communication strategy that responds to that. So otherwise, you're in a loose, loose situation, right? Because if you don't react, then there is a danger that you're basically guilty as charged. And then when they start changing the laws, which they will, right, then you lose your independence. And I mean, we've experienced that in Cyprus when the law was changed with the Settled Bank governance law. And of course, there were, there was a legal opinion by the ACB, but the, you know, people in Cyprus didn't look at it. So if you do engage in, in fact, we have examples from the UK on Mark Carney, made comments on Brexit, and he was just attacked. So it's a big challenge, and I don't really have the answers. But there's no doubt that the public understandings of what the Settled Bank is doing needs to be improved. And of course, stakeholders, and who are the stakeholders, not just the parliaments, it's not just the politicians. It's the public at large. So Settled Bank transparency and communication are now much more important than ever, I think. So I believe there has to be a constant dialogue. It's got to be systematic. And it's not just the one-off conference after the monetary policy decisions. When it comes to the SSM, I didn't see much in the last few years in terms of the communication. But certainly opening up to the, especially to the younger generations who hold the future is much more important than ever. So I think that Settled Banks need to need to do a lot more. And of course, one aspect that Ben touched upon and I sort of agree with is the appointment process, not just of the ECB, the executive board, but generally in the euro system. And I'll come back to that shortly. Now, the definition, I think you all have seen this before. And this is basically the treaty. So I'm just going to skip that. And this is the interpretation of it by Eve Merche, who is now the executive board member in charge of legal, right? And this is from a paper from a speech she gave. And it's a very narrow definition and the justification he gives, and basically limits himself to its own monetary policy. So supervision sort of stays in a bit of a limbo, right? So basically because of the definition, it's much easier when it comes to price stability to define what is the objective and to be accountable to it. And I appreciate that. But does it mean we leave supervision unprotected? I don't think so. I don't think he's right. But we still have that big problem that others have referred to this morning. One other aspect, I think that's people fail to notice is that the treaty only protects central bank governance, right? It doesn't protect deputy governance. It doesn't protect members of the boards of national central banks. So enforcement has been problematic, or even of the treaty in several countries. And I give three examples there. Cyprus, Slovenia, and Latvia. And I think two of them have been to sort of European courts. Or I think the commission is now taking action on Slovenia from what I've read. Okay, so where is the problem? Where do I see the problem moving forward? What I see gradually happening is that governments are working through the central bank boards, right? Political capture, basically, of the boards. So and of course, the fact that the SSM, the SSM has been in operation for five years, is an easy target for politicians. I've seen it in Cyprus again as another example. I have no difficulty saying it in public because I've said it already in public. The failure of the co-op bank in Cyprus, which was very recent, the co-op bank was bailed out with public money in 2013, right? It was controlled more or less by the government. And there was an inquiry. And the inquiry, 800 pages long, a judicial inquiry, proper inquiry, and basically I described a lot of the blame to the government. Nevertheless, the government comes out and attacks the SSM for all kinds of changing the, basically the rules or changing the go posts, et cetera. So basically the SSM has been scapegoated once again. So it's the same pattern. So Europe to blame for sort of failures at home. Now one of the things that I wanted to mention is this, because I think that's been completely ignored and I haven't heard of any of this so far, we have fit and proper rules for commercial bank boards. We don't have anything like it or any processes, in fact, in many euro area countries. So what we end up having is sometimes people who are not fit and proper to sit on a commercial bank board end up on a central bank board. And I think that's just wrong, right? And especially if it's, they could also be members of the governing council, right? And we've had that. So that's, we need, it's, unless central banks fix, you know, put their house in order, I think it's very difficult to, to, to actually have more understanding of what they're doing. And of course this is, needs to be addressed politically. There's another aspect that is some working on right now, because that's not, yeah, this is my last slide. And I think it's an important one. It's political money laundering. Somebody mentioned this morning about corruption, right? Now, how widespread is this? We've seen a lot of cases of money laundering coming through in Europe, right? And there are many angles to it and how it interacts with central banks. But one of the most important aspects here is that the SSM has no responsibility for anti-money laundering supervision. It remains in the hands of national member states. So it is highly, highly vulnerable in Europe. So things need to change and they need to change quickly. Because if it's not just populism, what I see is not just populism, populism, it's also, it could be related to that, right? It's capture. And it's, it's dirty money with a purpose. Thank you. Okay. So we've had three very thoughtful presentation, probably not as disciplined as I hope there would be. That's okay. It's given us a lot of food for thought. Now, since I'm conscious of time, I'm just going to jump straight to the questions from the floor. So if you have any questions, please raise your hand. I see one from Daniel, one from Rosa and one over there. And then we'll answer. So to start from, kind of groups from. Four people were going back and forth between monetary policy and supervision. And I was wondering whether we should take it as a given that the central bank does both, especially in the European context. And maybe Ben could give us also some historic perspective on whether what we have right now, which actually was an accident of history in 2012 when our leaders said, we need banking union quickly. They look around and the only credible institution which could do it quickly was the ECB. Should we in Europe not think about that and maybe change that? Okay. Okay. That's okay. My point, I have a couple of brief points or relatively brief points. One is with regard to the interpretation that Merce, if Merce did in 2017, I mean, that was the opinion that he had, but it's not necessarily the interpretation of the ECB on its own mandate because article 130 of the treaty for the functioning of the European Union specifically says that when exercising its functions and tasks, all the tasks that are confer upon the ECB. So the treaty itself actually does not limit the independence to the ambit of monetary policy even though if Merce in that speech made that declaration, but anyway, it is just the declaration of one of the members of the governing council. So again, this gives the reason a little bit to the speech that Ignacio Geloni did this morning with regard to independence. The other point concerns the issue that Ben Friedman mentioning his absolutely excellent speech about Lender of large resort because Ignacio Geloni also said in a speech recently earlier this year that in banking union, we have one pillar and a half. The one pillar is SSM and then half is single resolution because we're still in the process. Like you say, we don't have sufficient funds and even the building up of the single resolution fund will take up until 2022. But you know, and we don't have depositing insurance either. But one of the pillars that we do not have in banking union is Lender of large resort. And that is because of a restrictive interpretation that the executive board of the European Central Bank made of its own competencies back at the beginning of the system. But in principle, as some people have argued, including myself, that the ECB could provide not only market liquidity assistance, which it does, but individual liquidity assistance to institutions which at the moment are subject to the ELA of the national central banks, albeit with a complicated procedure, which I know you know well, panicus, because they need to have the fiat of the governing council. And if the governing council says no more, then there is no more. This creates additional problems for resolution because the ECB has the power to cut the top of the water and then put the institution effectively into resolution. So I'd like to have the comments from the audience. And also to talk about oversight, the judicial review, there is judicial review of ECB monetary policy. Okay. Good. And finally. Yes, thank you. My name is Klaus Maasuch. I just want to say to ignore too, a concrete calculation for this wonderful conference, excellent panels on my question. It's both to Benjamin Friedman. You said that the ECB was instrumental in helping creditors from the North to say to avoid debt restructuring to get their money back. Can you explain a bit, because it's not so clear what the role of the ECB was and what the role of the member states was in this, how you see this. And to the panicus, the intermediates, thanks a lot for the presentation. I think there are very many, very good thoughts in this. And it brought me back to what we discussed in the morning about the quality of institutions in member states and where Guido's Tabeline's presentation, where we can integrate and how we can integrate. Let me, it's more a comment, but I like your reaction. How can we have a functioning European integration if somebody like Bosjan, who does what the European rules are saying, is hunted in Slovenia because the oligarchs who were bailed in are also controlling the press? How can we have a functioning European Union and integration if the chief statistician in Greece, Andreas Georgiu, who did nothing but implementing European rules, is hunted time and again in front of Greek courts and has no chance to appeal to a European court? So how can we solve, if these basic problems for people working for Europe are not solved, how can we make progress? Thank you. Okay. I think we'll leave it there. I also have a final question, which I'd like to ask before, which is in, I don't know whether this is, it's something which one can do here, if it's polite or not, but I'm going to ask it anyway. In a few months time, this institution will change its head, which is possibly the biggest decision which one can make about central banks and it's a democratic decision because it comes from governments. So at a time of rising populism and challenges to central bank, what is your advice to the people who are going to make that decision when they're going to choose who the successor to the current president is? So that's my final question. I will start, let's go in the opposite direction. So let's start with you and you answer whatever question which has been answered. Yeah. The points are well taken and obviously a lot has to do with legal interpretation, but if it's on the Governor Council, on the executive board, so it's got a lot of weight how he interprets the ECB sort of protection of independence. And of course there is protection of independence for supervision, but only a limited one. It's not, it's only for the members, the ECB members on the supervisory board or the other members on the supervisory board have no protection of their personal independence. So always interpretation on everything. So that's important. Going straight to your question I think which is I think it's relevant to this because it's how you interpret your role, right? How do you get the best person to lead the ECB? Is it going to be with horse trading between Germany and France? I don't think so. I just don't think that that's going to produce. And if we wanted to a major shift towards greater transparency, this is a time to do it. Open it up like they do in the UK, right? And then of course... Of course, that would be the Canadian. Yes. He's free, no? In June he's free, so he could... I think that there is no... Basically there's very little legitimacy left in Europe at this stage with all the appointments that just are the result of horse trading. If we continue like this, all is going to happen. It's just going to fuel all these guys who are at the margins either extreme left or extreme right. So I know it's a big step to take, but certainly I think that would be a very important one. They're not going to do it, of course. It's just wishful. Thank you. Maybe you want to answer? Yeah, if I can. Because we wrote a piece together 20 years ago and we were in favor of separating and I changed my mind maybe in light of experience. But I think one of the answers is linked to the question of land of last resort. What we found ourselves during the crisis is that we were providing a lending to banks that were not solvent based on the certification by the local supervisor that they were solvent, which they were not. Because of course there is an incentive by the local supervisor to say, yes, don't worry, just continue lending unless until you get out of good collateral. Now the point is that if you are logical in this reasoning now that the supervision has come to DCB, land of last resort should be centralized and shared. So the risk of lending to banks which are solvent but do not have enough collateral should be shared. I think that I would agree with you and this would be at least a reflection in the, in the ECB. I think if I can answer your question, I will not say. I think if we had an experience of European nominations which were disastrous, I would say, you know, it's time to change. Now I will not comment but I think we didn't, and I think the recent decisions have really been relatively good. So before saying we need to change and as Jean-Claude Téche would say, we rely on the wisdom of the heads of state and government which the US does because they rely on the wisdom of a single person but and in the end that wisdom has not given particularly bad results. So I think, I think I would not, I mean the process is not transparent. I don't think it is transparent necessarily in other places. I don't think which we can go in the British solution but I think, I think we need to accept that this is part of a political process and politics is about Australia. I mean within countries or without. Now the issue is nationality and so forth but I think I would, I would want to see a major mistake before saying we need to change. I think European appointments, maybe I should not say that, but European appointments have on quality, they're relatively better than national. Let me just drop this little provocation. Lots of provocations from, from Lorenzo today for those who want to understand them and finally. I think there were two questions directed toward me. One was Daniel's question about combining monetary policy functions and supervision and regulation functions. Our country's regime in this regard is not anything I think to be recommended. We have had this very fragmented system historically in which bank holding companies were regulated by the Federal Reserve. Banks might be regulated by the controller of the currency, state banks might be regulated at the state level, there's also an involvement of the Federal Deposit Insurance Corporation. My view has been that the Federal Reserve is the dominant regulator in terms of two features. One is competence. The Federal Reserve is simply more competent than any of these others or all of them put together. And second, I think the Federal Reserve is less subject to regulatory capture by the industry. This is especially a problem at the state level, but even the controller of the currency. These decisions are not in the hands of the chairman of the Federal Reserve. They're also the Federal Reserve bank presidents do not play a role. They're in the hands of the Federal Reserve board, so that's seven people. They have staggered terms. It's very difficult for some president to install the majority that is going to be captive to the banks. So if you combine the structural advantages with the historic record of competence, my own view is that any time these functions are transferred from somebody else to the Federal Reserve, that's a step in the right direction. This is very idiosyncratic to the U.S. On the question of what I have in mind in the exploitation of the southern countries, various banks, mostly domiciled in northern European countries held credits on countries domiciled in the south. And everybody understood after some point that these credits were not going to be good credits. And so five minutes before the default occurred, the bonds were transferred from the balance sheet of the lenders who had been happy to collect the interest as well as the fees on the loans all this period of time. Five minutes before the default occurred, the bonds were transferred to the balance sheets of various official lenders whose policy, understandably, is that if the official sector doesn't take default losses, now how did that then play out? Then there is this triumvirate tripartite, whatever, which imposed on the borrowers certain obligations in return for restructuring, rolling over these bonds which could not default. And I'll simply offer the contrast to the 1953 London debt agreement which restructured Germany's debt. As I hope everybody in the room understands, the country in the world that has had more debt restructuring than any other country within the last century is Germany. I'll say it again. The country in the world that has had more debt forgiveness than any other country in the world is Germany. Now, there was all these various agreements throughout the 20s and the 30s. The major part of the agreement was the London debt agreement in 1953 which had as an explicit feature that the restructuring of the debt was not to involve any provision that would impair the cost, that would impair the living standard of the German public. Contrast that with the conditions imposed on Greece. We must follow rules as the rubric, but the rules that apply when Germany can't pay its bills are different rules from the rules that apply when somebody, some other country, can't pay its bills. So this is what I have in mind. And you could have imagined a regime in which the central bank would not have been part of this apparatus, but in fact it played out in a way that the ECB was part of the apparatus. I've written about this, so there's lots there, but in brief that's what I meant. I'm sure we could have an entire new discussion on this last statement by Professor Friedman, but I think we should draw it too close because we are running out of time. So I would like you to join me in thanking the panel for a very thoughtful and provocative discussion. Thank you. Well done. Well done.
 I'm introduced by Professor Friedman, who is the William Joseph Meyer Professor of Political  Economy at Harvard University. He will speak for around 20 minutes.  And then 25.  25, okay.  You're credit.  And then as a discussion we have first Lorenzo Viniz Maghi, who has been a professor of  economics, who has been previously of this parish as an executive board member and now  is the chairman of Societe Generale, and then Panicoz de Matriales, who is from University  of Leicester, but also previously a governing council member as the governor of the central  bank of Cyprus. We'll both intervene for seven minutes and I think that's the agreement  we had and we need to finish on time, so I would really urge you to be as concise as  you can.  But Professor Friedman, let's start with you.  Thank you very much for Donando. It's an enormous pleasure to join in honoring Ignacio  on this occasion. Ignacio is a person who uniquely has made two quite different contributions  to this extraordinary institution. Both last night and already this morning we've heard  a lot about Ignacio's contributions to the realm of bank supervision and regulation.  I won't need to elaborate those, but let me remind everyone that Ignacio was here before  and at a very crucial period together with several other people, I think for example  of Atmar Ising, I think for example of Tomaso Padua-Shiopa. Ignacio played a fundamental  role in devising the monetary policy strategy of the ECB. This was an enormous contribution  for which not just everyone at the bank, but everyone in Europe should be grateful. So,  Ignacio, congratulations to you on your two sets of extraordinary accomplishments and  it's a great pleasure to join in honoring you today.  Now I want to talk about implications of the current populism for central banks. I want  to make three sets of introductory remarks. First, I want to say why I do not regard what  we are seeing today in many of our countries, my own included, as genuine populism. Think  of it as Erzat's populism, so-called populism, I want to say why. Second, I want to use just  a few examples from my own country to indicate that the adversarial relationship between  populism and central banks is nothing new. There is a very long history of this kind  of adversarialism and I see no reason to expect it to abate. And third, I want to address  the question of whether the problems that stand behind the current so-called populism  are of central banks making. The conclusion I'm going to offer is that it doesn't really  matter. Central banks frequently have to deal with problems that they have not created and  I think this is one. Then I want to go on and address in turn a series of areas of central  banking responsibility, monetary policy, supervision and regulation, last resort lending, and  finally the governance and legitimacy of central banks and consider each in turn to establish  whether today's so-called populism has already created problems for central banks, but to  contemplate whether it will in the future even if it hasn't already. So first place,  why do I not regard this movement in so many of our countries today as legitimate populism?  To be sure, today's agitation shares a number of features with legitimate historical populism.  There is the resentment of perceived elites, or we have to be very careful because the  notion of who is and who is not among the elite is very much in the eye of the beholder.  And my sense is that the elites who are resented today are very much those associated with  education and expertise and this of course has a bearing on central banks and central  banking. There is the antipathy toward established authority in many of our countries. This takes  a variety of forms playing out not merely in the political arena. There is a disaffection  from the established political parties in many of these countries and of course that  has different implications in different countries. In many European countries, Germany for example,  it's relatively easy to start a new political party. In my country it's almost impossible  to do that. Had Trump been German, he presumably would have started something like the AFD  in the United States. That's difficult and so instead he did a hostile takeover of one  of the existing political parties. Not that that was easy, but it was easier than trying  to create a new party. And then finally, and I would say most regrettably, one of the features  that today's so-called populism shares with genuine populism throughout history and in  many of our countries are the ugly pathologies ranging from nationalism, nativism, xenophobia,  racism, religious bigotry in all of our countries, both the movements and the political parties  that have indulged in populism all willingly wallow in these pathologies. And no one knows  where this will go and how far it will proceed, but in many of our countries we all know where  this has led in the past. Now if all of these features of today's agitation are in common  with historical populism, why then do I not regard this as legitimate populism? And the  answer is that today's populists in most of the countries that I am aware of have no serious  program for taking initiatives that would redound to the benefit of economically disadvantaged  citizens. And at least historically that has been the core of populism in one country after  another. This is not to say that the measures that populists have historically advocated have  uniformly been correct or that they would have, if adopted, have had the effect that they were  intended for them. Many of these countries' populist groups historically have favored  misguided policies. Nonetheless, there was at least something there. And my survey of the  countries in Europe and in my own country today is that there is simply no serious program.  And I think that's a great difference from historical populism. And it's also fair to say  that today's populists are attacking the central banking community here I have in mind, especially  monetary policy, making from the opposite direction. Historically, populism has been opposed to tight  money policy. Today, many of the so-called populists are opposed to easy money policy.  Now, I don't want to spend too much time on the minutiae of my own country's financial history,  but I would just like to, perhaps the slide speaks for itself. We have had many, many examples  of the interaction between populism and central banking in my country. We had a central bank  very early under Alexander Hamilton. That was the Bank of the United States in 1791. It was allowed  to go out of business when its 20-year charter expired in 1811. Simply, they didn't have enough  votes in the Senate to renew the charter. Many of us think of Jefferson in a positive light,  but I certainly do. But one of Jefferson's great mistakes was to oppose the renewal of the first  bank charter. There was then a second central bank, started in 1816. The charter ran out 20 years later  in 1836. This time, they had the votes to renew it and did in the Congress, and Andrew Jackson  famously vetoed it. It was the leading issue in the second term of Jackson's presidency.  My country then went for three fourths of the century without a central bank, not because no one ever  thought of creating a third one. Many people did, but there simply wasn't enough support.  Then in the 1880s, in the 1890s, we had what we regard in the United States as populism  with a capital P. That is, there was actually a populist party in which people like William  Jennings Bryan famously opposed the gold standard. What many people don't remember, however, is that  Bryan was not just a populist. When he ran for president in 1896, he ran as a Democrat.  The famous cross of gold speech was his acceptance speech, accepting the nomination  nomination of the Democratic Party for president when he ran at the nominating convention in Chicago.  Then there was Wright Patman, the great leader, chairman of the House Banking Committee throughout  the 20s and 30s, and on into the 40s, who took great pride in having run Andrew Mellon out of  office as the secretary of the treasury. For people who are not familiar with the history,  Wright Patman's most famous economic proposition was that the way to fight inflation is to lower  interest rates. I'll say that again. The way to fight inflation was to lower interest rates  because high interest rates were a cost of doing business for indebted companies,  and the company would have to pass that cost along in the price it chose in the product market.  Eerily in the United States, we are now hearing some echo of Wright Patmanism.  Paul Volcker had a running battle with a Texas firm called Lone Star Industries in the construction  business when Paul finally broke the back of American inflation. For those old enough to  remember, Lone Star Industries used to run full page ads in the Wall Street Journal once a week  criticizing Paul Volcker personally and his policies. By coincidence, I happened to be working  at the Board of Governors of the Federal Reserve in the summer of, I think, 1979, when this enormous  truck pulled up in front of the building, not on the Constitution Avenue side, but at the  C Street side, and there was this enormous flatbed truck full of lumber sent to Paul personally as  Chairman of the Federal Reserve. The note that came with it said, Dear Paul, here, I can't use this  anymore. You take it. This was Lone Star Industries protest against policy. Then I deliberately picked  two examples to indicate that this is not necessarily a partisan thing. There have been  Democratic populace and Republican populace. Now, finally, by way of introduction, I want to say  something about whether the problems that are fueling today's populism are of central banks  making. My answer is mostly no. We are all familiar with issues like slow productivity growth,  widening inequality in America, increasing poverty. In Europe, you don't have poverty because you  avoid that, but we don't. We do have poverty. Strains from globalization. We're all familiar  with these phenomena, and they are not of central banks making. Nonetheless, I think  central bankers would be too complacent to think that they have played no role. The place to begin  is that the fiction that we all endlessly repeat that monetary policy is distributionally neutral  is just that. It is a fiction. And regardless of how many times we proclaim it, it turns out not to  be true. Almost all elements of monetary policy, whether interest rate policy, asset purchase  programs, last resort lending, all have very significant distributional effects. And in many  countries, these distributional effects are part of what today's anti-central bank crowd  objects to. Now, there's a legitimate analytical question of whether central banks' emphasis  on price stability has stunted economic growth. I won't go into this issue. One could have an  entire conference on that. In short, the analytical question turns on whether there is either an actual  or a perceived non-linearity in either the Phillips Curve relationship or in central bank  preferences. Either one, if the asymmetry goes in the non-linearity goes in the right direction,  either one would mean that an emphasis on price stability stunts growth. Again, there may or  may not be such a bias. And finally, here in Europe, my sense is that part of the problem  is that for reasons we all can't understand, the ECB has allowed itself to become part of the  enforcement mechanism of the process whereby reckless lenders in the northern countries,  instead of taking their losses exploit financially and economically the borrowers  in the southern countries. And I think this is a very unfortunate  role for any central bank to play. Either way, however, whether the central banks themselves  are the cause of the problems that are fueling today's so-called populism doesn't matter because  frequently central banks have to deal with problems that are not of their own making.  So now let's do a quick review of the state of play in these four areas of central banking.  First, classical monetary policy. At least in most of the countries that I follow carefully,  I would say that there has not yet been any distortion of the interest rate setting policies  of central banks coming from populist pressure. Now the one area in which I think there would be  pressure would be if central banks were to try to coordinate their policies internationally.  As I'm guessing everybody is aware, however, it is not at all clear that central banks should  actually do this. There is a very large and well-developed literature of coordination of  monetary policies internationally. And I think the fair estimate is that that literature has been  and will remain inconclusive. And therefore, whether today's movements would prevent such an  effort by central banks is not at all clear. On balance sheet policy, however, the story is very  different. And already in many countries there has been enormous opposition from exactly the  quarters that we're discussing to the asset purchase programs. And in part, this has come from  fallacious, old-fashioned, monetarist reasoning. We all know economists. We all have dear friends  who embarrassed themselves and embarrassed us by pointing out that if the central bank  multiplies the size of its balance sheet by three or four or five within some short period of time,  this would of course lead to a trebling or a quadrupling or a quintupling, not just of the  inflation rate but of the price level. This was of course never to be believed in the first place,  but some people did believe it and worse yet some people said it. It of course turned out to be wrong.  This fallacy is not identical to populism, but historically there has been a strong affinity  between populist movements and crude monetarism. I don't think anybody has explored why this is true.  Fixation with currency arrangements has been a staple of populist thinking for the last two  centuries and so there is something there. What is valid to repeat from before is that these programs  have had and continue to have significant distributional implications and people don't like that.  How about challenges to supervision and regulation? At least viewed from an American perspective,  I would say not yet. Not yet. But there are grounds for concern. I leave it to my two colleagues on  the panel to say whether that conclusion would hold for Europe. But there are grounds for concern.  One ground for concern is the potential for the kind of political financial corruption.  I don't mean indirect corruption. I mean capital C corruption that we have seen many, many times.  The poster child was Charles Keating a few decades ago who paid five senators to block  regulators from enforcing the rules on him. But I think in many forms the current situation  runs great risks. In the United States we now have the frightening situation in which the  elected chief executive of the country identifies specific businesses and specific businessmen  as enemies of the people. Now to date American bankers who have a historical memory comparable  to that of the fruit fly have not reacted. But this is I think a failure of historical understanding.  I am guessing that anybody in this room is quite prepared to recall the idea that the enemy of  the people could be the banks and the bankers. And by extension the enemy of the people could be  the central bankers. Think about what it would mean for example if the next president of the  United States used the phrase failing city bank as frequently as our current president uses the  phrase failing New York Times. Think about what it would mean in the market if the next president  were to use the phrase fake money JP Morgan as frequently as the current president uses the  phrase fake news CNN. This is not outside of the bounds of possibility. Finally here in Europe  and again I defer to my colleagues there is the anomaly of this single supervisory and  resolution mechanism of which I hope everyone in this room is justly proud viewed from afar.  This is a marvelous achievement and not see how I again congratulate you but I congratulate  European the European community more generally. But the problem is there is no money behind it.  There is no there is no serious EU money behind this and we shall see whether that turns out to  be a problem. Third on the list what about last resort lending. This has already happened.  We don't have to speculate in the United States. This has already happened. Section 1101 of the  Dodd-Frank Act amended section 133 of the Federal Reserve Act so that much of what the Federal  Reserve did to stem runs during the crisis cannot now be done without a signed permission slip from  the Secretary of the Treasury. One could of course say why does this matter because the Secretary of  the Treasury would of course grant permission. I think this is not at all this is not this is not  at all guaranteed. One could also say that this doesn't matter because the amendment to section  133 did not apply to banks. It only applies to non banks. This is not comforting. There's something  somewhere between 10 and 13 trillion dollars of runnable short-term liabilities owed by U.S.  domiciled institutions that are not banks and therefore that are now excluded under section  1101 from exactly the kind of lending that the Federal Reserve did during the last crisis.  What about Europe? Well I defer to my colleagues on the panel. Finally what about the broader issue  not of policy making but of the governance and legitimacy of central banking? As Paul Tucker  among many other people have pointed out there are generic concerns on political theory grounds for  the legitimacy of any kind of quasi independent policy making institution and central banks may  be the only maybe the most obvious example but they are not the only example. I think however that  both in my country and here in Europe there are some very specific vulnerabilities of the central  bank that go beyond the usual political theory issues. The Federal Reserve system is a very  peculiar animal. I won't ask for a show of hands on how many people know this but it turns out that  the Federal Reserve banks not the board but the banks are privately owned. They are owned by the  commercial banks. Now most of us in this room would know that this matter is not one iota it just  doesn't matter but if you go to the kind of websites that the current quasi populist movement  inhabits and go to Federal Reserve what you will find is the statement that the fact that the Federal  Reserve banks are owned by the share owners surely means that their role is to act into the  profit making interest of their share owners that's what entities that are owned privately do.  These are the same websites that populate the usual or inhabit the usual populist space they will  assure you that they will assure you that Jay Powell is a Jew there is the whole range of  standard populist pathologies. It also turns out that the boards of directors of these privately  held banks are two-thirds of them consist of bankers and worse yet it turns out that the  boards of directors of these privately held Federal Reserve banks select the presidents of the banks  who in turn without any confirmation from the U.S. Senate serve in policy making capacities on the  Federal Open Market Committee. We may not take this seriously at all but it is a real vulnerability.  And the last comment on my own country's situation is that the congressional oversight of Federal  Reserve policy has been historically weak and continues to be so. This matters because under  Article 1 Section 8 of the U.S. Constitution it's very clear that the monetary policy power  is delegated to the Congress and so everything that the Federal Reserve does it does by delegation  from the Congress and is certainly subject to oversight by congressional authority.  Here in Europe I think the issues are somewhat similar and somewhat different. An American  perspective is that part of the ECB's political problems stems not from anything specific to the  ECB but to the top down I'll say non-democratic instead of anti-democratic character of the  European project as a whole. I would hope that even in a room of Europeans most people are aware  of the opening words of the U.S. Constitution. It famously starts off we the people meaning that  the power that created this new republic came from the people. Do people recall the opening words  of the proposed European Constitution that eventually was not adopted? I'm seeing lots  of blank stares and so I would have thought the European. It started off His Majesty the King of  Belgium. Well this is an issue. It started off His Majesty the King of Belgium because the conceit  was that instead of the American example in which the power from which this new republic sprang was  the people the European Union was a project that was being granted by the not just the heads of  government the heads of state of the member countries and they were listed in alphabetical order  and so the first person up in Tibet was the King of Belgium. Well one could go on in this vein  but the difference between a bottom up and a top down union is very clear and I think this is of  course not the ECB's fault but the ECB is collateral damage in this battle. Part of the  problem of the ECB I think that is shared by the with the Federal Reserve is the absence of  effective oversight. I understand that there are hearings at which the president of the ECB  testifies in Strasbourg or Brussels or wherever it happens to be taking place. This is no  comfort. There are hearings at which the chairman of the Federal Reserve testifies before the  relevant congressional committees and this is not very impressive. And finally here at the ECB  in problem that you have that we don't do not is the complete non transparency of the appointment  process. In the United States for better or worse candidates are appointed by the president  and that's what it is. Whereas here because of the multi the multi-country aspect there is a  behind the scenes horse trading aspect to ECB the ECB appointment process which runs against  the grain of today's so-called populism or any populism. Let me conclude by again saluting you  Ignacio. You have been you are a great friend whom we all admire respect love. You have been you are  a great civil servant who's shown that there is such thing as integrity and it is possible to  live a life in the public sphere with integrity and you have been and you are a great European  patriot. So I salute you for all of those and to quote Cicero Aveyaque Walle.  Well I will start by by first thanking Ignacio for for inviting me to this conference.  In fact you didn't really invite me you summoned me to this conference saying that  I won't say exactly what you said but being being my supervisor I of course I was  I was forced to come. No I would say because he said well it's partly your fault if I'm here  you have been here which is true. We've been known each other for many years since I joined  the Bank of Italy. We were together at the Monetary Policies of Committee chaired by Lucas.  I don't know how you Lucas saw the two of us working together but certainly I learned a lot  from Ignacio and then I was at the European Monitoring Institute for four years and with many  people that are in this room when the ECB started I thought for personal reasons I wanted to go back  to Italy and I went to talk to Tomas of Paverschiopa saying listen I think I should go back to Italy  for several reasons. I said you're crazy. There are already very few Italians if you live.  The only way to live is if you get somebody smarter than you and even if he's Italian at least  there would be no doubt that there are problems of nationality just go and find if you can.  So I thought who can be really smarter than I am and after five minutes I called Ignacio  and I talked him into that. I don't know if in the end it worked out I think for you and it worked  out for me in spite of my ego I could accept. I think it was something good for ECB and for the  SSM. So this is to say that I have a lot of affection for you and I think we worked together  very well. I think Ben Friedman's speech and paper was very interesting. I think you didn't  mention one thing which was why did Andrew Jackson not renew the photo. The interesting thing and I  mentioned this to Mario Draghi. He said after 20 years you have become too powerful which is a way  to say you're the only game in town we would say today and so it's better to get rid of these  unelected politicians, unelected technocrats because they have too much power and this is one of the  risks. I will come back to that later on. The other comment I would mention is try to resist  when you come from the US reading European integration only through US history. You mentioned  that the appointment of the Federal Reserve Chairman is transparent because the president  decides. It's a kind of a strange concept of transparency. Through that here we are not that  transparent but at least we know that I think we rely as Jean-Claude Trichet would say on the wisdom  of the state and which is more or less relying on the wisdom of Mr. Trump. So maybe just going  do I have my presentation on? No? Oh there's no presentation.  Okay so we didn't work out well together but this is the first time. In any case so don't worry.  I had only a couple of small things. I want to mention is I think we have a good  basis for understanding independence of central banks for monetary policy. There is a lot of  literature, there is a lot of empirical evidence comparing the Bundesbank with other central banks.  We have actually the experience of the ECB until the crisis. I think until the crisis  was something that few people would criticize. But with the crisis I think there are much  more questions and one of the issues is that we have not been able to achieve really price  stability. We are struggling. Inflation is still below the 2%, much below, much more below.  Growth is still fragile. There are inequalities and some people would say that the way in which  monetary policy has been implemented. Now don't worry, it doesn't matter. It doesn't matter.  I mean my presentation had only a couple of slides. So the issue has come back to the  fore. I mean and I would want to mention a couple of issues that are key in maintaining independence.  But to be sure central banks have become more powerful after the crisis.  Because they are the only game in town, they have adopted new instruments and they have become  more responsible on supervisory issues. And this is not true only in Europe. It's true for the Fed.  It's true for the Bank of England who got back supervision. And so the issue of independence  for supervisors is even more important. But it is in my view in spite of the contributions that  have been made in the literature, it has less of an analytical framework to support it.  Second, what is key in my view in the central bank independence from monetary policy, which is a key  objective, price stability, then even in the U.S. framework in the end it can be interpreted as in  any case monetary stability. In the supervisory aspect it is financial stability. And you could  actually if you read the mandate of the ECB, it's banking stability of the banking system as you  read this morning, but you have also integration of the European banking system. And that's a much  more complex element to assess and to calibrate what is banking stability. And can you really  identify a result as being a good result or a bad result as you can with inflation is much  more complicated. And I think this morning, the other element is that there is no trade-off in  the long term for monetary policy, inflation and growth. This whole concept that you can separate  inflation and growth is that there is no trade-off. And you can ask yourself, is there a trade-off,  at least for some time, between financial stability or banking stability and growth, for instance?  This morning, you mentioned that in the end the  decision on the appropriate risk return characteristic of the banking system is up for  the politicians to decide, for the legislature. The problem that I, and then you said the  politicians, the people, and the people are made of taxpayers and depositors.  Well, I would say it is a bit more complicated in my experience. First, people hold deposits, but they  hold many other financial assets. And the people who go to Philippe to get not zero return, they want  return. And Philippe mentioned this morning he will not invest in banks unless they have a good  return on capital, in particular unless they have a return on capital which is higher than the cost of  capital. So in the end, the trade-off that you have in society is also in our society, which is  very wealthy, has a lot of wealth. In the end, it is also made of people who want to have a  remuneration on their own savings, a high remuneration. And so if you are not able to deliver, in the  end, they will disinvest from the banking system. And it has a nice chart here, but it doesn't matter,  you can imagine it. If you compare this morning it was mentioned, the capitalization of banks in  the US and Europe, you see a clear bifurcation. And if you see what is the consequence of that,  well, if you look at credit to the real economy, it's the same bifurcation.  It's not as dramatic, it doesn't decrease in Europe. It's more or less in the end, we are in 2018,  back to the levels of 2007, so credit has been stable. While in the US, it has increased by 40%.  So the banking system in the US, the US which is not a bank-centric system,  has increased dramatically in Europe, which is a bank-centric system, credit has remained  constant. It's very efficient here in real time. So this, as a society, you have to ask yourself,  do I have the right combination of risk return? And my regulatory framework, is it appropriate  for the kind of growth that you need to support the economy and to fight populism? Because in the  end populism emerges if you don't have growth. Let's see, yeah, that's very good, very efficient.  Yeah, I wanted just to show you because I want to...  So credit to the real economy, the red is the eurozone and the gray is the US.  The smart ones of you would say, but this is the man determined, but then I show the market financing.  And you see that the red, even though the capital market in Europe is smaller,  you've seen how much it has grown. So the demand was very strong for financing,  and therefore the hypothesis that this bad performance in Europe was partly due to the  supply side. So to a weak banking system cannot be really rejected, I think, or it has to be  taken into account. So in light of what we have, maybe we have to consider whether this tradeoff  really between growth and stability is the appropriate one. And over time, this is a risk,  I will mention this. This is a risk to the independence of the regulator and of the ECB.  Let me conclude the final point. What are the main risks again to independence in Europe?  Well, in Europe there is an additional dimension, I think, which is trust that the institutions are  doing what they do for the interests of Europe, not of the various national countries. And I think  Andrea mentioned this this morning. In my view, one of the greatest threats or greatest blows  to independence is when the national authorities have started to distance themselves from the  decision of the ECB. And I can think about two examples. One is 2010 on monetary policy,  and the other is 2017 on supervisory issues. I will not give the details so that the Chatham  House rule is not... These are two central banks who have distance themselves clearly from a decision  on monetary policy, a decision on supervisory policy, who have given the impression that the  decisions are taken for national objectives rather than a European objective. I think this is the  biggest threat in Europe, and it is up to the central bank and the single supervisor to try to  discipline and to try really to construct a cohesive mechanism so that the people  where they in Italy or in Germany think that whatever decision is made is really made for  the interests of Europe, not against them or in favor of somebody else. I think I gave enough hints  for you to understand what were these two decisions. But I think this is the biggest threat. It is  within the system, I think, because when you look at the overall results of monetary policy and even  of supervisory, it has really been, I think, quite successful. It can always improve it quite so  quickly. The main fear, I think, comes from the inside. So I hope your successors will be as wise  as you in Gnacio in your job. Thank you very much.  Well, thank you very much, Gnacio, for inviting me here. It's a great pleasure and an honor to be  here, especially in this very distinguished audience, as well as my fellow panel members.  I came across Gnacio fairly late on compared to the rest of you, which was 2012 when we started  doing the work for the SSM. And I think largely the credit for the SSM being set up so quickly must go  at least a lot of it to Gnacio. I just could not believe how much progress there was from one meeting  to the next. Because Gnacio was reporting to us in formal dinners here in this building, top floor.  And every few weeks, we had some massive manuals coming in, which really raised the question,  how quickly are these people working? And of course, he was chairing that task force, obviously,  a lot of credit to Gnacio for all that work. So what I'm going to do, in fact,  in some sense, I'm very pleased because a lot of the things I was going to say have already been  one way or another covered. But there are at least three issues that haven't been, and I want to sort  of discuss a little bit. So clearly the presentation by Ben Friedman, absolutely outstanding, I could  agree with nearly everything there. I have just a few points that I sort of take issue with.  And one was the strong language at least he used when he described the ECB as a mechanism,  part of the enforcement mechanism for financial exploitation by rescued creditors. And of course,  we've seen it. I'm sure it's perceived like that in many countries, including my own country.  That's how the ECB was perceived. And of course, I did try to explain, in fact, in the presence of  her, the president and others in Cyprus that it's not like that. But I don't think I quite succeeded  just to explain how the ECB has to play by the rules and in fact by the treaty and by,  well, the law that is there to provide liquidity to banks in trouble. But then again, when you have  a narrative created by a president which says the ECB put a gun on my head, I think people  will kind of believe that that's true. A lot of people at least, right? So it is a perception  which I would argue is wrong. But as I said, it's very hard to actually explain why it is wrong.  Now, in terms of challenges to supervision and regulation, I think we have seen plenty  in Europe a lot of challenges. And that's partly, I think, because we've started applying  bail in. In fact, Cyprus was one of them, but also Slovenia, Spain, Portugal, etc. So every time  there are investors who are hit, there is a reaction and there is, of course, a challenge.  The pattern is a challenge to the estimates of the stress tests, be it the EBA stress test or  whoever test stress test or is the National Central Bank stress test or whatever. There's  always a challenge. And of course, this is where, I mean, many of us have been very careful with  them, but nevertheless, it's inevitable. So partly because a bailout hides so many sins, right?  A bailing doesn't hide them. And inevitably, you get the hit. And in the front line, it's the  institutions that do that. And it has been in Europe, at least in the periphery, it has been  the central banks. So it's been a big challenge. When it comes to a lending, yes, we've also had  challenges. And in fact, Cyprus is another example there. We've had all kinds of police  investigations. We had witch hunts. We had inquiries into this. And in fact, I do,  this is if you excuse me, commercial break, is all in my book on the first book that I wrote  on the diary of the Euro crisis in Cyprus. So there has been a lot there, a lot of challenge.  Now, I would also argue that, you know, oversight, absence of EU oversight, I don't find it that  obvious, right? That there is, and I don't see how you can square that circle. Yes, is it not  enough to go to European parliament? Is it not enough to go to national parliament? Maybe not  enough is happening. I mean, the SSM, as I understand, could and should go to national  parliament. I don't think they've done it very much. But I think that's a practice that needs to  be encouraged when it comes to supervision, not when it comes to monetary policy, which is common,  obviously, but certainly when it comes to supervision. Right. I think the general problem is that I  felt also during my short time as governor that you're very much an easy target, whether you want  to call them populists or not, the politicians basically have access to the media. They have  a natural following, right? They have basically groups behind them, interest groups, have helped  them get across their messages, whatever they are. Settled banks inevitably cannot, need not,  should not, perhaps, engage in political debates, right? But when the politicians are putting across  fallacies or fake news, what do they do? Do you just sit there and allow that to continue?  So you need to develop a strategy to cope with that. And I'm not saying you should respond to  them, but there should be some form of communication strategy that responds to that. So otherwise,  you're in a loose, loose situation, right? Because if you don't react, then there is a danger that  you're basically guilty as charged. And then when they start changing the laws, which they will,  right, then you lose your independence. And I mean, we've experienced that in Cyprus when the law was  changed with the Settled Bank governance law. And of course, there were, there was a legal opinion  by the ACB, but the, you know, people in Cyprus didn't look at it. So if you do engage in, in  fact, we have examples from the UK on Mark Carney, made comments on Brexit, and he was just attacked.  So it's a big challenge, and I don't really have the answers. But there's no doubt that  the public understandings of what the Settled Bank is doing needs to be improved. And of course,  stakeholders, and who are the stakeholders, not just the parliaments, it's not just the  politicians. It's the public at large. So Settled Bank transparency and communication  are now much more important than ever, I think. So I believe there has to be a constant dialogue.  It's got to be systematic. And it's not just the one-off conference after the monetary policy  decisions. When it comes to the SSM, I didn't see much in the last few years in terms of  the communication. But certainly opening up to the, especially to the younger generations who  hold the future is much more important than ever. So I think that Settled Banks need to  need to do a lot more. And of course, one aspect that Ben touched upon and I sort of agree with  is the appointment process, not just of the ECB, the executive board, but generally in the euro  system. And I'll come back to that shortly. Now, the definition, I think you all have seen  this before. And this is basically the treaty. So I'm just going to skip that. And this is the  interpretation of it by Eve Merche, who is now the executive board member in charge of legal,  right? And this is from a paper from a speech she gave. And it's a very narrow definition and  the justification he gives, and basically limits himself to its own monetary policy.  So supervision sort of stays in a bit of a limbo, right? So basically because of the definition,  it's much easier when it comes to price stability to define what is the objective and  to be accountable to it. And I appreciate that. But does it mean we leave supervision unprotected?  I don't think so. I don't think he's right. But we still have that big problem that others have  referred to this morning. One other aspect, I think that's people fail to notice is that  the treaty only protects central bank governance, right? It doesn't protect deputy  governance. It doesn't protect members of the boards of national central banks.  So enforcement has been problematic, or even of the treaty in several countries. And I give  three examples there. Cyprus, Slovenia, and Latvia. And I think two of them have been to  sort of European courts. Or I think the commission is now taking action on Slovenia from what I've read.  Okay, so where is the problem? Where do I see the problem moving forward? What I see  gradually happening is that governments are working through the central bank boards,  right? Political capture, basically, of the boards. So and of course, the fact that the  SSM, the SSM has been in operation for five years, is an easy target for politicians. I've seen it  in Cyprus again as another example. I have no difficulty saying it in public because I've said  it already in public. The failure of the co-op bank in Cyprus, which was very recent,  the co-op bank was bailed out with public money in 2013, right? It was controlled more or less  by the government. And there was an inquiry. And the inquiry, 800 pages long, a judicial  inquiry, proper inquiry, and basically I described a lot of the blame to the government.  Nevertheless, the government comes out and attacks the SSM for all kinds of changing the, basically  the rules or changing the go posts, et cetera. So basically the SSM has been scapegoated once  again. So it's the same pattern. So Europe to blame for sort of failures at home. Now one of the  things that I wanted to mention is this, because I think that's been completely ignored and I haven't  heard of any of this so far, we have fit and proper rules for commercial bank boards. We don't have  anything like it or any processes, in fact, in many euro area countries. So what we end up having is  sometimes people who are not fit and proper to sit on a commercial bank board end up on a central  bank board. And I think that's just wrong, right? And especially if it's, they could also be members  of the governing council, right? And we've had that. So that's, we need, it's, unless central banks  fix, you know, put their house in order, I think it's very difficult to, to, to actually have more  understanding of what they're doing. And of course this is, needs to be addressed politically. There's  another aspect that is some working on right now, because that's not, yeah, this is my last slide.  And I think it's an important one. It's political money laundering. Somebody mentioned this morning  about corruption, right? Now, how widespread is this? We've seen a lot of cases of money laundering  coming through in Europe, right? And there are many angles to it and how it interacts with  central banks. But one of the most important aspects here is that the SSM has no responsibility  for anti-money laundering supervision. It remains in the hands of national member states. So it is  highly, highly vulnerable in Europe. So things need to change and they need to change quickly.  Because if it's not just populism, what I see is not just populism, populism, it's also,  it could be related to that, right? It's capture. And it's, it's dirty money with a purpose.  Thank you.  Okay. So we've had three very thoughtful presentation, probably not as disciplined as I hope there would  be. That's okay. It's given us a lot of food for thought. Now, since I'm conscious of time,  I'm just going to jump straight to the questions from the floor. So if you have any questions,  please raise your hand. I see one from Daniel, one from Rosa and one over there. And then we'll  answer. So to start from, kind of groups from.  Four people were going back and forth between monetary policy and supervision.  And I was wondering whether we should take it as a given that the central bank does both,  especially in the European context. And maybe Ben could give us also some historic  perspective on whether what we have right now, which actually was an accident of history in  2012 when our leaders said, we need banking union quickly. They look around and the only  credible institution which could do it quickly was the ECB. Should we in Europe not think about  that and maybe change that? Okay. Okay. That's okay.  My point, I have a couple of brief points or relatively brief points. One is with regard to  the interpretation that Merce, if Merce did in 2017, I mean, that was the opinion that he had,  but it's not necessarily the interpretation of the ECB on its own mandate because article 130 of  the treaty for the functioning of the European Union specifically says that when exercising  its functions and tasks, all the tasks that are confer upon the ECB. So the treaty itself actually  does not limit the independence to the ambit of monetary policy even though if Merce in that speech  made that declaration, but anyway, it is just the declaration of one of the members of the  governing council. So again, this gives the reason a little bit to the speech that Ignacio  Geloni did this morning with regard to independence. The other point concerns the issue that Ben  Friedman mentioning his absolutely excellent speech about Lender of large resort because Ignacio  Geloni also said in a speech recently earlier this year that in banking union, we have one pillar  and a half. The one pillar is SSM and then half is single resolution because we're still in the  process. Like you say, we don't have sufficient funds and even the building up of the single  resolution fund will take up until 2022. But you know, and we don't have depositing insurance either.  But one of the pillars that we do not have in banking union is Lender of large resort.  And that is because of a restrictive interpretation that the executive board of the European Central  Bank made of its own competencies back at the beginning of the system. But in principle,  as some people have argued, including myself, that the ECB could provide not only market  liquidity assistance, which it does, but individual liquidity assistance to institutions which at the  moment are subject to the ELA of the national central banks, albeit with a complicated procedure,  which I know you know well, panicus, because they need to have the fiat of the governing council.  And if the governing council says no more, then there is no more. This creates additional problems  for resolution because the ECB has the power to cut the top of the water and then put the  institution effectively into resolution. So I'd like to have the comments from the audience.  And also to talk about oversight, the judicial review, there is judicial review of ECB monetary  policy. Okay. Good. And finally. Yes, thank you. My name is Klaus Maasuch. I just want to say to  ignore too, a concrete calculation for this wonderful conference, excellent panels on my  question. It's both to Benjamin Friedman. You said that the ECB was instrumental in helping  creditors from the North to say to avoid debt restructuring to get their money back. Can you  explain a bit, because it's not so clear what the role of the ECB was and what the role of the  member states was in this, how you see this. And to the panicus, the intermediates, thanks a lot  for the presentation. I think there are very many, very good thoughts in this. And it brought me back  to what we discussed in the morning about the quality of institutions in member states and  where Guido's Tabeline's presentation, where we can integrate and how we can integrate.  Let me, it's more a comment, but I like your reaction. How can we have a functioning European  integration if somebody like Bosjan, who does what the European rules are saying, is hunted  in Slovenia because the oligarchs who were bailed in are also controlling the press?  How can we have a functioning European Union and integration if the chief statistician in  Greece, Andreas Georgiu, who did nothing but implementing European rules, is hunted time and  again in front of Greek courts and has no chance to appeal to a European court? So how can we solve,  if these basic problems for people working for Europe are not solved, how can we make progress?  Thank you. Okay. I think we'll leave it there. I also have a final question, which I'd like to ask  before, which is in, I don't know whether this is, it's something which one can do here, if it's  polite or not, but I'm going to ask it anyway. In a few months time, this institution will change  its head, which is possibly the biggest decision which one can make about central banks and it's  a democratic decision because it comes from governments. So at a time of rising populism  and challenges to central bank, what is your advice to the people who are going to make that  decision when they're going to choose who the successor to the current president is?  So that's my final question. I will start, let's go in the opposite direction. So let's start with  you and you answer whatever question which has been answered. Yeah. The points are well taken  and obviously a lot has to do with legal interpretation, but if it's on the Governor  Council, on the executive board, so it's got a lot of weight how he interprets the ECB sort of  protection of independence. And of course there is protection of independence for supervision,  but only a limited one. It's not, it's only for the members, the ECB members on the supervisory  board or the other members on the supervisory board have no protection of their personal  independence. So always interpretation on everything. So that's important. Going straight  to your question I think which is I think it's relevant to this because it's how you interpret  your role, right? How do you get the best person to lead the ECB? Is it going to be with  horse trading between Germany and France? I don't think so. I just don't think that that's  going to produce. And if we wanted to a major shift towards greater transparency, this is a  time to do it. Open it up like they do in the UK, right? And then of course... Of course,  that would be the Canadian.  Yes. He's free, no? In June he's free, so he could...  I think that there is no... Basically there's very little legitimacy left in Europe at this  stage with all the appointments that just are the result of horse trading. If we continue like this,  all is going to happen. It's just going to fuel all these guys who are at the margins either  extreme left or extreme right. So I know it's a big step to take, but certainly I think that  would be a very important one. They're not going to do it, of course. It's just wishful.  Thank you. Maybe you want to answer? Yeah, if I can. Because we wrote a piece together  20 years ago and we were in favor of separating and I changed my mind maybe in light of experience.  But I think one of the answers is linked to the question of land of last resort. What we found  ourselves during the crisis is that we were providing a lending to banks that were not  solvent based on the certification by the local supervisor that they were solvent,  which they were not. Because of course there is an incentive by the local supervisor to say,  yes, don't worry, just continue lending unless until you get out of good collateral.  Now the point is that if you are logical in this reasoning now that the supervision has come to  DCB, land of last resort should be centralized and shared. So the risk of lending to banks which  are solvent but do not have enough collateral should be shared. I think that I would agree with you  and this would be at least a reflection in the, in the ECB. I think if I can answer your question,  I will not say. I think if we had an experience of European nominations which were disastrous,  I would say, you know, it's time to change. Now I will not comment but I think we didn't,  and I think the recent decisions have really been relatively good. So before saying we need to  change and as Jean-Claude Téche would say, we rely on the wisdom of the heads of state and government  which the US does because they rely on the wisdom of a single person but and in the end that wisdom  has not given particularly bad results. So I think, I think I would not, I mean the process is not  transparent. I don't think it is transparent necessarily in other places. I don't think  which we can go in the British solution but I think, I think we need to accept that this  is part of a political process and politics is about Australia. I mean within countries or without.  Now the issue is nationality and so forth but I think I would, I would want to see a major mistake  before saying we need to change. I think European appointments, maybe I should not say that,  but European appointments have on quality, they're relatively better than national.  Let me just drop this little provocation. Lots of provocations from, from Lorenzo today  for those who want to understand them and finally. I think there were two questions  directed toward me. One was Daniel's question about combining monetary policy functions and  supervision and regulation functions. Our country's regime in this regard is not anything I think to be  recommended. We have had this very fragmented system historically in which bank holding  companies were regulated by the Federal Reserve. Banks might be regulated by the controller of  the currency, state banks might be regulated at the state level, there's also an involvement of  the Federal Deposit Insurance Corporation. My view has been that the Federal Reserve is the  dominant regulator in terms of two features. One is competence. The Federal Reserve is simply  more competent than any of these others or all of them put together. And second, I think the Federal  Reserve is less subject to regulatory capture by the industry. This is especially a problem at the  state level, but even the controller of the currency. These decisions are not in the hands of the  chairman of the Federal Reserve. They're also the Federal Reserve bank presidents do not play a  role. They're in the hands of the Federal Reserve board, so that's seven people. They have staggered  terms. It's very difficult for some president to install the majority that is going to be captive  to the banks. So if you combine the structural advantages with the historic record of competence,  my own view is that any time these functions are transferred from somebody else to the Federal  Reserve, that's a step in the right direction. This is very idiosyncratic to the U.S. On the  question of what I have in mind in the exploitation of the southern countries, various banks, mostly  domiciled in northern European countries held credits on countries domiciled in the south.  And everybody understood after some point that these credits were not going to be good credits.  And so five minutes before the default occurred, the bonds were transferred from the balance sheet  of the lenders who had been happy to collect the interest as well as the fees on the loans  all this period of time. Five minutes before the default occurred, the bonds were transferred to  the balance sheets of various official lenders whose policy, understandably, is that if the  official sector doesn't take default losses, now how did that then play out? Then there is this  triumvirate tripartite, whatever, which imposed on the borrowers certain obligations  in return for restructuring, rolling over these bonds which could not default. And I'll simply  offer the contrast to the 1953 London debt agreement which restructured Germany's debt.  As I hope everybody in the room understands, the country in the world that has had more debt  restructuring than any other country within the last century is Germany. I'll say it again.  The country in the world that has had more debt forgiveness than any other country in the world  is Germany. Now, there was all these various agreements throughout the 20s and the 30s.  The major part of the agreement was the London debt agreement in 1953 which had as an explicit  feature that the restructuring of the debt was not to involve any provision that would  impair the cost, that would impair the living standard of the German public. Contrast that  with the conditions imposed on Greece. We must follow rules as the rubric, but the rules that  apply when Germany can't pay its bills are different rules from the rules that apply when  somebody, some other country, can't pay its bills. So this is what I have in mind. And you could  have imagined a regime in which the central bank would not have been part of this apparatus,  but in fact it played out in a way that the ECB was part of the apparatus. I've written about  this, so there's lots there, but in brief that's what I meant.  I'm sure we could have an entire new discussion on this last statement by Professor Friedman,  but I think we should draw it too close because we are running out of time. So I would like you to  join me in thanking the panel for a very thoughtful and provocative discussion.  Thank you. Well done. Well done.
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