ones i would like to emphasise are financial regulation and supervision, and monetary policy. as i said earlier, providing a flow of liquidity as a monetary painkiller does nothing to tackle the root causes of the economic challenges we are facing. in the absence of economic r levine ( 2005 ) finance and growth : theory and evidence, in : handbook of economic growth. c m reinhart and k s rogoff ( 2008 ) this time is different. eight centuries of financial folly, princeton university press. j l arcand, e berkes and u panizza ( 2015 ) too much finance? journal of economic growth, 20 ( 2 ) : 105 – 148 ; european systemic risk board ( 2014 ) is europe overbanked? report of the advisory scientific committee no 4 / june 2014. bis central bankers ’ speeches progress on the structural front, monetary easing is not the key to a sustainable economy. it does, however, affect financial stability, given that it can fuel bubbles. therefore, we need to look for an exit strategy. it is important for central banks to think hard about how they intend to achieve an exit as soon as economic conditions make it viable to do so. from a more general angle, integrating financial stability considerations into monetary policy while maintaining the primacy of the price stability goal will be a key challenge for the future. i welcome the fact that central banks are moving in that direction. rock - solid regulation and responsible supervision is likewise indispensable for a stable financial system. over and above the progress we have made since the crisis erupted, there are three more steps we need to take. first, we must credibly implement the agreed reforms – for example, the new bail - in instruments need to be credible so that politicians do not preempt the bail - in during times of crisis. zombie banks should not be kept alive for political reasons. uncertainty over the bail - in instruments will only exacerbate market uncertainty. second, supervision must be steadfast. either banks are capable of managing their risks adequately, or supervisors must force them to do so – or, ultimately, they must take disciplinary measures. as such, it is up to a supervisor to increase an individual institution ’ s capital requirements, if need be. at the same time, however, we must be careful that risky activities do not move to unregulated areas. finally, we must not discontinue our reform efforts prematurely. we need to put an

andreas dombret : more painkillers, please? why more finance is the wrong medicine or our growth problem keynote remarks by dr andreas dombret, member of the executive board of the deutsche bundesbank, at the harvard law school symposium on “ building the financial system of the 21st century : an agenda for europe and the us ”, armonk, new york, 8 april 2016. * 1. * * introduction dear professor scott, dear ladies and gentlemen 2016 marks the 30th anniversary of the program on international financial systems. that ’ s about the age when young people begin to realise that smoking, drinking and working late hours won ’ t leave their physique unscathed. bad habits, happily ignored in younger years, catch up with them eventually. some of us probably know what i am talking about. you could say that today ’ s global economy has reached a similar point in its life. but it would be 38 today, having turned 30 back in 2008 when the financial crisis was raging. at that time, the global economy did realise that excess was detrimental to its long - term health. now the world economy is eight years older – but is it also eight years wiser? in other words, have we cut back enough on our bad habits to thrive for another four or five decades? or are we still leading a life of excess that will prove costly for tomorrow ’ s financial health? in my remarks today, i will argue that we have not yet done enough to adapt. for the global economy to become healthy and prosperous again – and to stay that way – we need to adapt our policy habits. we have to move towards a more sustainable mix : fewer painkillers, less wine, more healing and greater abstinence. 2. stricken by two illnesses at once our subject, the world economy, is still struggling to adapt to the new realities of being “ thirtysomething ”. it is stricken by two illnesses simultaneously. the first is the result of the excessive lifestyle it led before the crisis. i ’ m referring to the overblown financial system and the extreme leveraging, which created a lasting liability in the shape of mountains of debt. it was this excessive leveraging which paved the way to the financial crisis. during the crisis itself, it was plain to see that leverage levels needed to be lowered, especially in the financial sector. but precious little headway has been made in this regard, leaving us with an unstable financial system. 1 the second