This helped knit the country’s commerce together better and ensured that checks would be payable at par rather than discounted by differing amounts depending on how far one was from the bank of issue and how little one knew about a particular bank’s financial condition and viability. 2  BIS central bankers’ speeches  The view was generally held that centralization of banking would inevitably result in one of two alternatives: either complete governmental control, which meant politics in banking, or control by “Wall Street,” which meant banking in politics. 4 Importantly, the Federal Reserve was designed to have budgetary independence from the federal government. The System funds itself through its business operations, and not through Congressional appropriations. 5 This formed an important foundation in ensuring that the conduct of monetary policy would be independent from political influence. A wide range of research has shown that central banks achieve better outcomes with respect to employment and inflation when they are insulated from short-term political pressures in their conduct of monetary policy. 6 The Federal Reserve System was soon tested, first by the Depression of 1920–21, and then by the Great Depression. The searing experience of the Great Depression, including the 1933 Banking Holiday and thousands of bank failures, revealed significant shortcomings. This led to the Banking Act of 1935, which made two important changes – establishing a federal deposit insurance system and making the Federal Reserve System more centralized.

While there is a general consensus that fiscal consolidation and structural adjustment are necessary to regain competitiveness and sustainable growth in the future, in the immediate term it will involve costs to the economy. As the experience in previous crises has shown, including during the Asian Financial Crisis, there are threshold levels that when breached the economy will be pushed into an even deeper recession. This will in turn increase the cost of the resolution of the crisis and result in an even more prolonged period of weakness. The concern is also the potential huge financial and social costs. The Asian experience during the financial crisis in the late 1990s has also shown that the potential for effective results is enhanced when the policy package is comprehensive. BIS central bankers’ speeches  1  Financial restructuring and repair, fiscal consolidation and structural adjustments have their best chance to yield results in an environment in which there is some economic growth. Piecemeal policy measures that primarily focus on addressing the immediate problems will be inadequate and will not be able to garner sufficient growth momentum and thus sustain confidence. The financial restructuring and repair, the fiscal consolidation and structural adjustment urgently needs to be complemented with wide-ranging pro-growth policies. Another challenge confronting the world economy lies in the manner in which policy coordination may be improved, both within and across borders, to maximise the impact of policy measures while minimising the unintended spillovers on other parts of the economy or financial system and across borders.