the worst outcomes, as we have done in preparing for a no - deal brexit. and sometimes you need to be bold to avoid truly bad outcomes, exactly as mario draghi did when he said that the eurosystem would do “ whatever it takes ”. third, how should we respond to uncertainty about structural relationships? uncertainty about the transmission mechanism is often used to justify acting gradually. sometimes described as “ tiptoeing in a dark room ”, a central banker following the brainard principle attenuates his response to inflationary shocks if he is uncertain about the precise sensitivity of inflation to monetary policy. but the more cautious he is in the first step, the more ready he should be to take several additional steps : gradualism is not inaction. structural shifts in the economy are also constantly changing economic dynamics and equilibrium relationships, such as r * ( the natural rate of interest ) and u * ( the natural rate of unemployment ). but as john williams of the new york fed has pointed out, these stars are today more a fuzzy blur than a single bright point of light. so whilst they can help with the broad orientation of monetary policy, uncertainty about these stars is too wide to permit precise navigation. overall, therefore, the theoretical guidance on how to respond to uncertainty is itself open, to say the least. my understanding of the present debates leads me to the following four pragmatic suggestions that i hope can stimulate your discussions : 1. remain very clear about your objectives – uncertain times are not the right ones to create additional doubts about, say, your inflation target – and about your capacity and determination to use your tools in a predicable sequence. 2. but, whilst being consistent with your guidance, be very flexible in the precise calendar and calibration of your implementation. in short, be as predictable as possible, but never be precommitted. 3. act to prevent the worst outcomes occurring but without supplying complete insurance, which would create moral hazard. 4. never base policy on only one expected path for the economy. in conclusion, we cannot seek to control, or avoid, uncertainty ; instead we must implement strategies that are the most robust to it. the french philosopher edgar morin put it nicely : “ la connaissance progresse en integrant l ’ incertitude, non en l ’ exorcisant ” – “ knowledge advances by integrating uncertainty, not by exorcising it ”. with that in mind

philipp m hildebrand : financial stability and hedge funds : effective and ineffective supervision speech by mr philipp m hildebrand, member of the governing board of the swiss national bank, diskussionsforum « nachbarn deutschland - schweiz : impulse fur die zukunft », berlin, 9 november 2005. the complete speech can be found in german on the swiss national bank ’ s website ( www. snb. ch ). * * * the hedge fund industry has grown rapidly over the past few years and it has become an important segment of global financial markets. the possibility to use leverage and a high degree of flexibility are key elements of a broad range of investment strategies which have made the hedge funds industry very profitable. hedge funds have been an important source of innovation in the traditional asset management industry and they have rendered financial markets more liquid, more efficient and more flexible. nonetheless, the rapid growth of the industry and the excessive use of leverage may result in potential systemic risks which are relevant to central banks, unlike prudential matters. overall, industry leverage is difficult to measure. however, several studies suggest that it is lower than at the time of the near collapse of ltcm in 1998. even so, temporary excessive levels of leverage with single hedge funds can not be ruled out completely. a crisis in the hedge fund industry might therefore spill over to their primary trading partners, the major investment banks. hence, regulation and supervision in order to minimize systemic risk should concentrate on the leading global investment banks to make sure that adequate counterparty and liquidity risk management systems and processes are implemented. against the backdrop of scarce resources, we should refrain from opening new regulatory fields which are not relevant for systemic risks. 1 / 1