5 Indeed, in a July 2016 article, The Economist noted that Minksy had been referred to only once in their publication during his working life from the 1950s through to 1996 when he died, but that he had been mentioned around 30 times since the crisis broke in 2007. 6 For a review of this broader phenomenon, see Padoa-Schioppa, T (2010), “Markets and government before, during and after the 200720xx crisis”, The Per Jacobsson Lecture, June. 7 See also Turner, A (2010), “Market efficiency and rationality: why financial markets are different”, Lionel Robbins Memorial Lectures, London School of Economics. 3  3  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  3  addressed. Such thinking dominated the practical indifference to the housing and credit booms before the crisis.8 Second, if markets always clear, they should possess a natural stability. Evidence to the contrary must be the product of either market distortions or incomplete markets. Much of financial innovation springs from the logic that the solution to market failures is to build new markets on old ones.9 Progress through infinite regress. During the Great Moderation, this view became an organising principle for financiers and policymakers. The latter pursued a light touch regulatory agenda in quest for a perfect real world of complete markets first described as abstract theory by Arrow and Debreu.10 Of course, markets only clear in textbooks. In reality, people are irrational, economies are imperfect, and nature itself is unknowable. When such imperfections exist, adding markets can sometimes make things worse.

At the moment, a good deal of effort is being focused on the comprehensive exercise to assess the solvency of European banks which, as reflected in the Community Regulation creating the single supervisory mechanism, must be conducted before the mechanism commences operating next November. Allow me now to turn to the design and implications of this analytical exercise. 2. The comprehensive assessment of European banks  The comprehensive assessment being conducted by the ECB chiefly comprises two fundamental elements: the analysis of asset quality and the stress tests. The asset quality analysis involves evaluating, taking balance sheets as at 31 December 2013 as a reference, how rigorously financial statements reflect the value of banks’ different assets. This requires reviewing aspects such as the accounting classification of assets, the principles used to recognise their impairment, the sufficiency of the provisions set aside, how collateral is considered and, in the case of assets recorded at fair value, the suitability of the methodology used to determine their value. Having completed the selection of the asset portfolios for review, actual analysis has now begun in what is called phase 2 of the exercise, whose methodology was made public on 11 March. The process will not only require banks and supervisory authorities to assign sizeable resources; it will also involve the leading European audit and asset valuation firms. The ECB estimates that, not counting supervisory staff and bank employees themselves, more than 1,000 people will work on the exercise.