vitor constancio : thomas philippon ’ s contribution to macro - finance speech by mr vitor constancio, vice - president of the european central bank, at the ceremony awarding the german bernacer prize for promoting economic research in europe to thomas philippon, madrid, 3 november 2014. * * * i wish to thank angela maddaloni and agnese leonello, from the directorate general research, for their help in preparing this speech. ladies and gentlemen, i am delighted to be here today to award the 2013 german bernacer prize to thomas philippon, professor of finance at the stern school of business at new york university. thomas philippon is a renowned scholar with a wide - ranging research agenda, both theoretical and empirical. the numerous prizes he has won throughout his career, including “ best paper ” awards in several top journals, speak loudly about the academic quality of his contributions. thomas ’ s research – being right at the intersection between macroeconomics and finance – is also highly policy - relevant, not least from a central banker ’ s perspective, as i will try to highlight today. in fact, many central banks and the ecb in particular have devoted considerable attention and actively contributed to the burgeoning literature on macro - finance. the financial crisis underscored the need for a better understanding of the linkages between the health of the financial sector and the performance of the real economy. promoting economic research in this field is an essential step in the process of developing effective policies to ensure the stability of the financial sector and, ultimately, to foster economic growth. a prime example of this has been the macro - prudential research network ( mars ), where researchers from the european system of central banks closely collaborated with experts from academia. the mars network was launched to develop core conceptual frameworks, models and tools providing research support to improve macro - prudential supervision in the eu. its work, which was formally concluded last june, is summarised in a public report and represents a fine example of policy - relevant research. 1 to foster a constant communication with academics, the ecb also regularly organises seminars, conferences and workshops. these enable researchers, policy - makers and practitioners to meet and discuss the latest research findings and their implications for policy. in addition, to stimulate research at the highest academic standards, the ecb invites leading scholars to visit and conduct their research at the ecb, for example via the wim duisenberg fellowship, and offers

structures. in this context, one of the standards developed by the basel committee is somewhat underappreciated in my view. i am referring to the bcbs 239 principles for effective risk data aggregation and risk reporting, which play a significant role in adequately managing the risks of a bank. in order to make sound decisions, top management needs sound data. these are the basics. where do we stand in turning them into actual policy? well, it has taken some time to work through the long list of individual reforms. some of them are already in place ; others are now being implemented – with some delays here and there. 1 / 3 bis central bankers'speeches the final part of basel iii was agreed a year ago, in december 2017. so, this is the major set of reforms that still needs to be implemented. and while speed plays a role here, substance is also important. the reforms need to be turned into actual law, and this law has to reflect what was agreed in basel. it is important that this happens in all of the relevant financial markets. and i fear that this might not be the case. not least in europe, it seems that some of the basel standards might not be implemented faithfully. this affects important things such as the leverage ratio, the net stable funding ratio and the fundamental review of the trading book. other parts of the rulebook have also come under pressure. pillar 2 capital is a recent example. supervisors set the level of pillar 2 capital to account for risks which are not, or are only partially, covered by regulatory capital requirements ; it is thus an important additional tool for making banks more resilient. so far, significant banks in the euro area have had to cover their pillar 2 requirements with common equity tier 1, the highest quality of capital. this, however, might change. in the future, banks might generally be allowed to use lower - quality capital to build up their pillar 2 buffers. such a change will encourage banks and markets to come up with financial innovations with regard to additional tier 1 capital, or at1 for short. and this is something we supervisors are not very keen on, not least because we have already seen significant market volatility. on top of that, the playing field for large and small banks might become uneven. unlike large banks, smaller banks are often unable to access at1 markets. so the opportunity to use at1 in order to meet pillar 2 requirements would be of little benefit to them. large banks