of banking would inevitably result in one of two alternatives : either complete governmental control, which meant politics in banking, or control by “ wall street, ” which meant banking in politics. 4 importantly, the federal reserve was designed to have budgetary independence from the federal government. the system funds itself through its business operations, and not through congressional appropriations. 5 this formed an important foundation in ensuring that the conduct of monetary policy would be independent from political influence. a wide range of research has shown that central banks achieve better outcomes with respect to employment and inflation when they are insulated from short - term political pressures in their conduct of monetary policy. 6 the federal reserve system was soon tested, first by the depression of 1920 – 21, and then by the great depression. the searing experience of the great depression, including the 1933 banking holiday and thousands of bank failures, revealed significant shortcomings. this led to the banking act of 1935, which made two important changes – establishing a federal deposit insurance system and making the federal reserve system more centralized. the great depression made it clear that having a lender of last resort was not sufficient for preventing bank runs. deposit insurance, which had been debated but not adopted during the drafting of the federal reserve act, was instituted with the creation of the federal deposit insurance corporation. a second lesson was that monetary policy would be more effective if it were coordinated at the national level, rather than conducted individually by the reserve banks. 7 to accomplish this, the banking act replaced the federal reserve board with the board of governors of the federal reserve system, and established the federal open market committee ( fomc ) to oversee the conduct of monetary policy. the governors in washington were made dominant because they were given the majority of votes on the fomc. 8 over time, the role of the executive branch and the u. s. treasury was reduced. beginning in 1936, the secretary of the treasury no longer served on the fomc. the federal reserve board moved to its own building in 1937, and the federal reserve gained independence in the setting of monetary policy with the treasury - federal reserve accord in 1951. a century following the panic of 1907, another financial crisis led to the great recession. as was the case following the great depression, weaknesses exposed by the crisis led to further changes to the federal reserve system. some of these changes were legislated while others were initiated by the federal reserve itself. before discussing the lessons learned from the financial crisis and the changes that ensued,

for the mutual trust that is pivotal to opening up borders. the solution we have adopted so far is, i think, broadly the right one : to work as much as possible within the framework of the financial stability board ( fsb ). the fsb was established precisely to take forward the design of post - crisis financial reforms in a way that would be properly co - ordinated – both geographically and across industry sectors. it has helped deliver a set of reforms that have levelled the international playing field much more than before. in that sense, i think it has struck the right balance between enforcement and legitimacy. but it is not my purpose here to discuss in depth the merits of such committees, which i believe are a matter of common wisdom. my purpose is to raise only the following point : that the more we want borders to be open, the more we recognise also the potential of integrated markets to produce financial contagion, spillovers and in some cases financial instability, the more we need to have global institutions to regulate those markets. conclusion let me conclude. cross - border markets create a community of interest from which each member stands to benefit. but they also heighten shared exposure to the potential detriment of all. for markets to be truly free, therefore, they need governance. this is true at the global level and it is true at the european level. but it is even more true for countries that share a single market and a single currency. those countries have entered into an irrevocable union, built on the fertile ground of europe ’ s common values and history, but also on deep mutual vulnerability. for those countries it is even more important to complete economic and monetary union in all its aspects. bis central bankers ’ speeches