carlos da silva costa : opening remarks – " conference on financial stability " opening remarks by mr carlos da silva costa, governor of the bank of portugal, at the bank of portugal conference on financial stability, lisbon, 17 october 2017. * * * opening remarks by governor carlos da silva costa good morning ladies and gentlemen, it is a great pleasure to be here today to open banco de portugal ’ s 2017 conference on financial stability. on behalf of banco de portugal and the organising team, a very warm welcome to you all! 10 years past its beginning, academics and policymakers are still struggling to build a consensus on the policy implications of the financial crisis. it is undisputable that the financial system in most advanced countries is now sounder than at the onset of the financial crisis in 2007 : funding of the core of the financial system ( banks ) is more stable, an adjustment process leading to more sustainable levels of leverage took place, and banks are significantly more capitalized. nevertheless, the financial system is not immune to risks, and the existing policy instruments are unable to fully address the persisting legacy of the crisis. moreover, in the aftermath of the crisis, to reduce the risk of moral hazard and protect the taxpayer from shouldering private sector losses, there was a strong impetus against involving public money in providing a safety net to the financial system. bail - in principles in resolving banks prevailed, as well as a general aversion to bail out provisions. while this should be the norm, flexibility should be preserved to address emergency situations. by limiting policy options on the usage of public funds, regulators may have ended up exacerbating risks in the event of a systemic crisis. jeopardizing financial stability will result in output losses and damaging consequences to the overall economy. as investors rationally act to protect themselves against the possibility of haircuts to their claims on weaker institutions, the existing framework may actually accelerate runs and create a heightened vulnerability to a future systemic financial crisis. the incomplete set up of the banking union in europe with the full implementation of the resolution regime is a dangerous combination. last week ’ s proposal by the european commission risks prolonging this problem. when seen in the context of the much smaller room for manoeuvre of monetary and fiscal policy tools, this threatens to leave us less prepared to deal with future crises. therefore, despite the reforms in financial regulation, and the upgrade in analytical and monitoring instruments, we should not convince ourselves that our ability to detect and

secondly, the standardisation in connection with target2 promotes a more efficient structuring of the business processes. it enables participating banks, especially credit institutions active across europe, to consolidate their internal system landscape and it creates a leeway to offer customers a better range of services. in future, priority payments will be executed more quickly, securely and more effectively. • thirdly, the extensive settlement opportunities for ancillary systems provide for greater efficiency in terms of procedures and liquidity and also for greater security. furthermore, target2 creates optimal settlement opportunities with cross - border access to other systems. the issue of competition is more controversial in the case of target2 securities. although here too, i firmly believe that – owing to the settlement of securities transactions in central bank money on a single platform – we are ultimately more likely to significantly stimulate competition rather than restrict it. just like target2, target2 securities represents an integration of the basic settlement infrastructure in europe. the various settlement markets in europe are still very fragmented. in this respect, i see certain parallels with the discussions regarding the single euro payments area in retail payments. as a result, there are clear price differences between securities settlement systems. moreover, cross - border transactions, which require interaction between various systems, are also relatively expensive. what positive contribution can target2 securities make in this respect? first and foremost, i believe that it will reduce costs and abolish some giovannini barriers. in other words, target2 securities stands for : • harmonisation of technical interfaces, primarily in the area of settlements • europe - wide finality of securities trades • interoperability between central securities depositories, that is to say the settlement of transactions between different service providers will be simplified and more transparent. in future, it will be possible to settle cross - border transactions just as easily and securely as national transactions. the country in which the securities are held will no longer be an issue for the settlement of securities. in this respect, i believe that target2 securities could enhance other initiatives rather than contradict them. these initiatives, eg the code of conduct, will also result in a more efficient settlement of securities in europe. target2 securities offers a high degree of efficiency as an integrated settlement model and, owing to the consolidation of the settlement, it will ensure economies of scale and greater cost efficiency. target2 securities stands for competitive neutrality and, in our view, avoids the outsourcing of central bank account management. it also sets the benchmark for