##s, among others. a better understanding of expectations - building mechanisms and the bases of consumer and business confidence can also help the bank fine - tune the mechanisms to communicate its policy decisions so that it can provide reliable guidance to the markets. but the need for greater transparency does not end in monetary and financial policy, because the central bank, being a public institution, must be able to adapt its standards of transparency to the changing needs of markets and to the demands of chilean citizens. it must also be able to identify and prevent new perils threatening the performance of its various functions. at this point, it is particularly important to ensure the continuity of the payment systems and operations whereby monetary policy takes place, because of the great technological developments in this area and the high costs of any failure. equally important are the risks associated with the circulation of banknotes and coins and the lesser value means of payment that are part of the day to day lives of every chilean. the autonomy of the central bank also means that the quality of its institutional management is a special responsibility. although it is not part of the state ’ s administration, it is equally owned by every chilean, who rightfully demand an efficient use of their resources. to undertake all these tasks, it is important to recognize that trust in a central bank also rests on its prudence. an institution responsible for price stability and financial stability cannot afford to improvise or experiment. in this regard, it is important to acknowledge the potential, but also the limits of monetary policy. in particular, we must reaffirm that it does not have the capacity to affect the mediumterm trends of the economy and not even completely eliminate the cyclical variations that affect it. our main contribution to the country ’ s development is, in line with the mandate of our organic law, to keep inflation low and stable, reducing economic volatility and financial risks, with the expectation that by reducing uncertainty we will facilitate investment, employment and consumption decisions that shorten the cycle. the right mix of prudence and determination is not easy to calibrate. prudence is necessary to correctly assess the implications of changes in the economic environment, resisting the temptation to look for the easy way out, which can prove very costly in the medium term. determination is necessary in order to act in a timely way, because an untimely monetary policy will delay the convergence of inflation to the target or will do so at an unnecessary cost. 9 / 19 bis central bankers'speeches in practice

exchequer cost ( given the guarantee ), inherently uncertain though it was, could reach €50bn. ( i told an oireachtas committee as much at the time ). that figure could still be within most analysts ’ current range of estimates, not least because it did prove possible in the end to achieve a substantial burden - sharing with the subordinated debt - holders as the guarantee on those liabilities expired. ( as is well known, partner pressure inhibited burden - sharing with the holders of senior anglo irish / ibrc debt even after the guarantee ran out leaving more than €4 billion unguaranteed. this is a point which needs to be borne in mind by those who focus too exclusively on the famous night of the guarantee. though there is much to criticize about that guarantee, it is quite clear that, absent the guarantee, similar pressure would have been exerted by external partners to ensure that bank creditors were all paid. ) nevertheless, getting unassailable estimates in this matter of loan losses has proved to be very challenging. that the nama timeline of purchases would turn into a drip - feed of bad news through the middle months of 2010 was clearly unfortunate. my initial idea of stuffing the banks with so much capital that they could absorb anything that nama pricing and the residential mortgage market denouement could throw at them was defeated by the clear threat to the state ’ s market access that this would have caused ( no doubt advancing the need to fall back on the imf et al. ). besides, hard evidence on the exact scale of losses was elusive. denial at all levels in the banks persisted, and, absent sufficient information in the banks ’ own systems to make firmlybased and defensible projections, even the loss estimates embedded in the central bank ’ s first ( 2010 ) pcar were robustly challenged by some banks as being too tough. it is amusing now to recall that the central bank was pressed to agree that the capital requirements would be revised downward if subsequent nama valuations came in higher than the first tranche. restructuring of the banks as long as the guarantee was in effect was inhibited by the fact that any significant restructuring was likely to trigger an immediate entitlement for immediate payment in cash of all bondholders under the terms of the guarantee. this reason alone can explain why steps to deal definitively with even the two weakest banks were deferred to the end of the guarantee period. the slimming - down of the