“ easy money, uneasy finance ” on the relationship between monetary policy and financial stability speech by klaas knot at the peterson institute for international economics washington, 24 september 2018 in his speech at the peterson institute in washington, klaas knot states that a sound financial system makes life much easier for central bankers. but the reverse is also true : a weak financial system can cost monetary policymakers many sleepless nights. and secondly, he points out the need for further improvements in the regulatory framework in the coming years. 1. introduction ten years ago, the global financial system was on the brink of collapse. within just a couple of weeks, well - known and systemically important financial institutions either failed or teetered on the abyss. activity in several key financial markets ground to a complete halt. soon after, the global economy would enter a very deep recession. to remind you of the extreme circumstances of that time, let me show you the front page of the financial times from ten years ago on 24 september 2008. the headlines were dominated by the frenzied efforts of the us government and the fed to deal with the fallout from the lehman brothers collapse. we all remember the unimaginable developments that happened in those weeks. and we all remember the pain of the great recession that hit the global economy in the following years. however, i also remember the global commitment and co - operation among policymakers. deep uncertainty was plaguing the authorities. but a combination of extraordinary measures, including interventions, capital support and liquidity injections, eventually succeeded in restoring financial stability. 1 and an unprecedented monetary stimulus was provided through a range of conventional and unconventional tools. ten years later, we now stand at a vital crossroads. the supervisory reform program has made important progress. monetary policies are now being normalized. this afternoon i want to take stock of the current challenges. i would particularly like to focus on the importance of a robust financial system for conducting monetary policy. i want to convey two main messages. first, a sound financial system makes life much easier for central bankers. it limits the effects of financial shocks on the real economy ; it strengthens monetary transmission channels ; and it reduces unintended consequences of monetary policy actions. but the reverse is also true : a weak financial system can cost monetary policymakers many sleepless nights. second, against the background of a monetary environment that is likely to remain accommodative for some time, we therefore need to further strengthen the global financial system

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