One potential explanation is that high fees on underwriting and advisory activities are sustained as a reputational equilibrium. In effect, clients are willing to pay a premium to have bonds or equity underwritten by a recognised name, as this is a signal of quality to endinvestors. A similar phenomenon might explain the “2 and 20” fee structure of hedge funds. The OFT has recently announced an investigation into underwriting fees in the UK market. 6  CHAPS is the same-day electronic funds transfer system, operated by the bank-owned CHAPS Clearing Company, that is used for high-value/wholesale payments but also for other time-critical lower value payments (such as house purchase). BIS Review 95/2010  13  Another part of the puzzle was banks’ approach to managing risk across these business lines. For example, treasury functions are designed to help a firm as a whole manage its balance sheet, with internal transfer pricing for liquidity services to business lines. By acting in that way, the risk-taking incentives of each business unit can be aligned with the business as a whole, thereby complementing firms’ internal risk management. In practice, during the run-up to crisis, treasury functions were often run as a profit centre. That would tend to encourage two sets of risk-taking behaviour. First, it may have encouraged banks to take risks in balance sheet management – for example, by seeking out cheaper sources of capital (for example, hybrids over pure equity) or liquidity (shorter-term unsecured borrowing over long-term secured funding).

For instance, we could set the necessary incentives through the remuneration of digital euro holdings, to make sure the digital euro is an attractive means of payment, not a form of investment.14  What next? Exploring design options, consulting the public and working together Our report also describes the design options we are considering. We will explore all aspects of different options: whether they are technically feasible, whether they comply with the principles and policy objectives of the Eurosystem, and whether they satisfy the needs of prospective users. But introducing a digital euro is more than a technical question. The value of money – in both physical and digital forms – is rooted in citizens’ trust. Acceptance by the public is crucial. For this reason, today we are launching our public consultation. We are seeking feedback on the design and on the financial and social issues surrounding the possible introduction of a digital euro. We welcome everyone’s views: citizens, merchants, the non-financial sector, professionals from the financial industry, technology companies, and academics. We encourage everyone to take part. After the public consultation and a period of preparatory work, the ECB’s Governing Council will decide – towards the middle of 2021 – whether to initiate a fully-fledged project that should lead us to define the specific characteristics of a digital euro and get ready for a possible launch. This journey will require prudence and perseverance. Conclusion Let me conclude. Since the introduction of the euro, the ECB has been responsible for preserving citizens’ trust in our currency.