they see stricter trade and immigration controls as the answer to people ’ s concerns. however, they fail to recognise that it is precisely the opening - up of trade that improves a country ’ s competitiveness by facilitating the division of labour, which enables countries to exploit their own individual competitive advantages. this allows goods to be produced at low cost, which increases consumers ’ purchasing power. ideally, this stimulates demand ; prosperity, investment, and, ultimately, employment increase as a result. one thing is clear : isolationism brings no benefits, offers no stability and does not lead to prosperity. the belief that protectionism is the better alternative is merely an illusion. 1 / 4 bis central bankers'speeches nonetheless, scepticism regarding the european project has grown. of course, some of the criticism aimed at the euro area is justified. unfortunately, closer european cooperation also produces undesirable side - effects. without a doubt, there are major benefits to the single european market. but, at the same time, it obviously creates redistribution effects which can cause the regional loss of jobs or wage stagnation. and these effects tend to undermine many people ’ s trust in the european union. the european project must therefore be judged on the extent to which it benefits all its citizens. on the one hand, economic and socio - political action needs to be taken in this regard – but i won ’ t go into further detail about that today. on the other, however, there is also a fundamental need to overhaul the regulatory framework in europe. parts of this framework need to be adjusted and parts need to be completed in order to provide a stable footing for the european project in the long term. only stable institutions and a reliable regulatory framework can create confidence. we saw the opposite of this during the european sovereign debt crisis, when a lack of confidence in the euro area led to a crisis which was by no means confined to individual countries. even though many necessary reforms have been initiated and the euro area has been made significantly less vulnerable to crises, we have not yet reached our goal. we still need to press ahead with the right reforms in order to strengthen people ’ s trust in the institutions of the eu, which would also take some of the wind out of the sails of populism. so let ’ s now consider where we could start making specific institutional changes. 3. the euro area – room for improvement in the status quo the sovereign debt crisis made one of the euro area ’ s problems glaring

), https : / / www. federalreserve. gov / newsevents / speech / brainard20170428a. htm. executive office of the president, preparing for the future of artificial intelligence. u. s. department of the treasury, a financial system that creates economic opportunities. board of governors of the federal reserve system, “ guidance on model risk management, ” supervision and regulation letter sr letter 11 - 7 ( april 4, 2011 ), https : / / www. federalreserve. gov / supervisionreg / srletters / sr1107. htm. see also andrew burt, “ leave a. i. alone, ” new york times, january 4, 2018, https : / / www. nytimes. com / 2018 / 01 / 04 / opinion / leave - artificial - intelligence. html. - 6with compensating controls. similarly, when our own examiners evaluate model risk, they generally begin with an evaluation of the processes firms have for developing and reviewing models, as well as the response to any shortcomings in a model or the ability to review it. importantly, the guidance recognizes that not all aspects of a model may be fully transparent, as with proprietary vendor models, for instance. banks can use such models, but the guidance highlights the importance of using other tools to cabin or otherwise mitigate the risk of an unexplained or opaque model. risks may be offset by mitigating external controls like “ circuitbreakers ” or other mechanisms. and importantly, models should always be interpreted in context. second, our guidance on vendor risk management ( sr 13 - 19 / ca 13 - 21 ), along with the prudential regulators ’ guidance on technology service providers, highlights considerations firms should weigh when outsourcing business functions or activities - - and could be expected to apply as well to ai - based tools or services that are externally sourced. 15 the vast majority of the banks that we supervise will have to rely on the expertise, data, and off - the - shelf ai tools of nonbank vendors to take advantage of ai - powered processes. whether these tools are chatbots, antimoney - laundering / know your customer compliance products, or new credit evaluation tools, it seems likely that they would be classified as services to the bank. the vendor risk - management guidance discusses best practices for supervised firms regarding due diligence, selection, and contracting processes in selecting an