A prime example of this has been the Macro-prudential Research Network (MaRs), where researchers from the European System of Central Banks closely collaborated with experts from academia. The MaRs network was launched to develop core conceptual frameworks, models and tools providing research support to improve macro-prudential supervision in the EU. Its work, which was formally concluded last June, is summarised in a public report and represents a fine example of policy-relevant research. 1 To foster a constant communication with academics, the ECB also regularly organises seminars, conferences and workshops. These enable researchers, policy-makers and practitioners to meet and discuss the latest research findings and their implications for policy. In addition, to stimulate research at the highest academic standards, the ECB invites leading scholars to visit and conduct their research at the ECB, for example via the Wim Duisenberg Fellowship, and offers support to young researchers by funding five Lamfalussy Fellowships every year. Thomas Philippon’s contributions represent an excellent example of policy-relevant research. I will consider two main areas of his research which I find particularly interesting: the design of optimal interventions and the efficiency of the financial sector. In his 2012 paper, published as the lead article in the American Economic Review, Thomas and his co-author Vasiliki Skreta study the design of optimal public interventions in debt markets. The intervention aims at restoring an efficient level of investment when productive investments are forgone because firms face unfairly high interest rates due to adverse selection.

First, since banks that do not directly participate may benefit from the overall improvement in the market conditions, a free rider problem arises. Therefore, intervention should be conditional on the participation of a critical mass of banks. Second, if the conditions are very favourable, banks may choose strategically to participate in the programme, thus increasing its overall cost. Hence, it is paramount that the intervention entails some costs for the current shareholders. I don’t need to stress how relevant these issues became, especially in the aftermath of the financial crisis, when massive intervention in the banking industry had imposed very large costs on Europe’s taxpayers and had significant consequences for the sovereigns. Indeed, a key concern for policy-makers is that the large support offered to the financial sector may spur opportunistic behaviour and generally distort financial institutions’ risk-taking incentive, possibly magnifying the costs of the intervention while reducing its effectiveness. Thomas Philippon’s analysis is timely and tackles a very relevant issue as new rules for intervention and resolution of banks are currently being implemented. The new EU rules surrounding  3  See, for example, Heider, F., M. Hoerova, and C. Holthausen, (2009) “Liquidity hoarding and interbank market spreads: the role of counterparty risk”, ECB Working Paper No 1126 on the role of asymmetric information in the interbank market freeze during the recent financial crisis. Moreover, the de Larosière report pointed to the lack of transparency as being one of the causes of the financial crisis (EU Commission, 2009).