Addressing their root causes required stronger banks, a more resilient financial system, solvent governments, and the delinking of bank and sovereign credit risk. On the two of these imperatives, the EU has made welcome progress, with the establishment of the Single Supervisory Mechanism and the European Systemic Risk Board. These bodies are helping address a classic collective action problem by overcoming the inevitable temptation of national supervisors to ringfence liquidity and capital within national boundaries to the detriment of a single market for capital. Alongside improving the transmission mechanism, the ECB made important advances in the conduct of monetary policy. It has reduced the effective lower bound on policy rates and created additional stimulus through forward guidance, new lending facilities and innovative asset purchase programmes. These actions have helped shape the expectations of both market participants and the general public. The challenge now facing the ECB – and monetary policy makers more broadly – is to provide sufficient stimulus to meet its price stability objective when powerful structural forces are pushing down equilibrium interest rates. As I noted at Jackson Hole,3 the risk of a global liquidity trap puts a high premium on getting more than just monetary policy right. In a global liquidity trap, central banks cannot be the only policy makers who do “whatever it takes.” There are clear gains from coordination, with other policies – particularly fiscal policy – having important roles. The biggest gains would come from lowering trade tensions.

A vital plank was to encourage greater central clearing of OTC trades, which prior to the crisis had been largely unregulated, unreported and bilaterally settled. When Lehman fell, uncertainty about these exposures sparked panic. Routing bilateral trades through central counterparties untangles this tangled web. Globally, the stock of centrally cleared derivatives has more than doubled since the crisis.1 And around two-thirds of outstanding interest rate derivatives in the UK and Europe are cleared through CCPs.2 Of course, central clearing means that CCPs are sources of systemic risk, which is why Benoît led efforts to build their resilience and improve their resolvability. As Chair of the Committee on Payments and Markets Infrastructure (CPMI), he oversaw the implementation of the Principles for Financial Market Infrastructure – a set of demanding, international standards for payment, clearing and settlement systems that ensure CCPs are robust to shocks. As a result, an additional $ trillion of collateral is now held globally against all derivative trades. Under Benoît’s leadership, the CPMI has worked with other authorities to finalise and implement global standards for resolution. And he has consistently encouraged greater cross-border cooperation, better information sharing and more coordinated stress testing. Whilst the infrastructure that underpins our markets is now in much better shape, nascent risks remain that, if left unchecked, could bring new problems. Consider market liquidity. During the crisis, liquidity dried up, particularly in the interbank market, as cash-rich banks hoarded excess funds.