And despite a significant rise in risk weights, there had been only a modest slimming of SIFI trading books by 2013, with the average share of assets going from 22% to 19%. An alternative, more micro-economic, approach to gauging organisational complexity is to look at internal structures. For example, Collinson and Jay (2012) use a five-way classification of complexity: governance; internal structures; staff capabilities; roles and responsibilities; and corporate culture. They use this to evaluate the world’s largest 200 companies, including 26 banks. Financial services rank sixth overall as an industry on complexity grounds. Within this, however, there is a striking diversity in performance, with a number of banks standing out as having high levels of complexity and low performance. Chart 5 plots banks’ complexity and performance, based on a study by Simplicity Consulting in 2012. 9 It shows an inverted U-shaped pattern. While modest degrees of bank complexity are good for performance, beyond a threshold these complexity benefits go into reverse and performance worsens. This U-shaped pattern is consistent with micro-economic theory. It suggests economies of scale and scope in banking can give way to diseconomies beyond some threshold. There is empirical evidence suggesting diseconomies of scale may operate for some SIFIs, consistent with them being “too complex to manage” (Davies and Tracey (2014)). Taken together, this evidence suggests the world’s SIFIs are, and remain, highly complex entities in their own right. (b)  Complexity within the financial system  As with individual banks, there are no perfect metrics of financial system complexity.

But once public debt reaches levels at which its sustainability comes into question, for some financial investors at least, there is the risk of self-fulfilling crisis. This uncertainty can weigh heavily on investment and growth. III. Monetary policy response to policy-induced uncertainty  How should central banks respond to this policy-induced uncertainty? I would like to return to the three C’s I mentioned earlier: credibility, consistency and clarity. Page 5 sur 5 To protect our credibility, we need to stick to our mandate of price stability. And in this regard I would say that we are more certain about the path of inflation than we are for growth. A protectionist shock would be undoubtedly bad for growth but the effect on inflation is more ambiguous, at least in the short run. A persistently high oil price would as well be negative for growth but contribute to inflation. Sticking to our mandate also means no fiscal dominance. The relationship between monetary and fiscal policy ultimately depends on who determines the price level. The risk with fiscal dominant regimes is that inflation rises in line with public debt because people expect it to be eventually monetized by the central bank. Modern central banking is unambiguous on this point – we cannot have fiscal dominance and the path of inflation is set by the central bank. Not only are central banks forbidden from monetary financing, the timing of monetary policy decisions is not determined by the fiscal problems of member states. The second C is consistency.