##weekly periodicals called bank note reporters that listed prevailing discounts on thousands of individual banks. research based on data from these publications has shown that the notes of new entrants into banking tended to trade at significant discounts. if a bank demonstrated its ability to redeem its notes, over time the discount diminished. the declining discount on a bank ’ s notes implies a lower cost of funds, the present value of which can be considered an intangible asset, the bank ’ s reputation. banks had a strong incentive to avoid overissuing notes so as not to impair the value of this intangible asset. throughout the free banking era the effectiveness of this competition for reputation imparted an increased type of market discipline, perhaps because technological change - - the telegraph and the railroad - - made monitoring of banks more effective and reduced the time required to send a note home for redemption. between 1838 and 1860 the discounts on notes of new entrants diminished and discounts came to correspond more closely to objective measures of the riskiness of individual banks. another element of the maturation of private market regulation in banking was the emergence of full - fledged bank clearing houses, beginning with the establishment of the new york clearing house in 1853. the primary impetus for the development of clearing houses was the increasing importance of checkable deposits as a means of payment. large merchants were making payments by checks drawn on their deposit accounts as early as the 1780s. but in the 1840s and 1850s the use of checks spread rapidly to shopkeepers, mechanics and professional men. the clearing house reduced the costs of clearing and settling the interbank obligations arising from the collection of checks and banknotes, and thereby made feasible the daily settlement in specie of each bank ’ s multilateral net claim on, or obligation to, the other banks in the clearing house. by itself, such an efficient clearing mechanism constrained the ability of individual banks to expand their lending imprudently. from the very beginning, however, clearing houses introduced other important elements of private, selfregulation. for example, the new york clearing house ’ s 1854 constitution established capital requirements for admission to the clearing house and required members to submit to periodic exams of the clearing house. if an exam revealed that the bank ’ s capital had become impaired, it could be expelled from the clearing house. - 4national banking ( 1863 - 1913 ) one compelling piece of evidence that contemporary observers did not regard free banking as a failure is that the national banking system

the real deficits of our society. and if you really want to challenge the status quo, my advice is to have in mind also the way your research will be disseminated and materialized in real life. on the other hand, let ’ s not forget to preserve what is valuable in the current establishment. as an old word of wisdom is saying, we need courage to change the things which should be changed, serenity to accept the things that cannot be changed, and the wisdom to distinguish the one from the other. i wish you success with the debates! 2 / 2 bis central bankers'speeches