burst? or, as william white put it more succinctly : “ should monetary policy ‘ lean or clean ’? ” 3 according to the pre - crisis consensus, monetary policy should not even attempt to deflate asset price bubbles. in this vein, alan greenspan said in 2002 at the jackson hole symposium : “ the notion that a well - timed incremental tightening could have been calibrated to prevent the late 1990s bubble is almost surely an illusion. ” see m goodfriend ( 2007 ), how the world achieved consensus on monetary policy, in journal of economic perspectives, vol 21, no 4, pp 47 - 68. see a alesina and l h summers ( 1993 ), central bank independence and macroeconomic performance : some comparative evidence, journal of money, credit and banking, vol 25, no 2, pp 151 - 162. see w r white ( 2009 ), should monetary policy " lean or clean "?, federal reserve bank of dallas, globalization and monetary policy institute, working paper no 34. bis central bankers ’ speeches however, if we look back in time, we see that traditionally, central banks had their minds on financial stability issues. when, in the 19th century, bank deposits began to emerge alongside banknotes, financial soundness became an issue for central banks, because banks operating in a fractional reserve system are susceptible to a bank run. this is why the function of the central bank as a " lender of last resort " gained importance at the time. financial panics and bank runs were reoccurring events, particularly during the second half of the 19th century and the early years of the 20th century. indeed, the lessons learned from financial panics, notably the crisis of 1907, were a major catalyst in the establishment of the federal reserve in 1913. the original goal of the fed, then, was to preserve financial stability. according to one of the authors of the federal reserve act, robert latham owen, the fed was established to " provide a means by which periodic panics which shake the american republic and do it enormous injury shall be stopped. " 4 as carmen reinhart and kenneth rogoff note, “ there is no mention of a price stability mandate in the original version of the legislation. indeed, the word inflation does not appear at all in the document. a full employment macroeconomic goal is not even remotely alluded to. ” 5 however, the tight focus on financial stability turned out to be problematic.

all. despite the practical difficulties involved in telling illiquidity from insolvency in real time, central banks need to show where their limits lie. besides, in greece doubts about the solvency of banks are legitimate and rising by the day. it needs to be crystal clear that responsibility for further developments in greece and for any decisions on transferring h james ( 2012 ), making the european monetary union – the role of the committee of central bank governors and the origins of the european central bank, cambridge, mass. bis central bankers ’ speeches financial resources lies with the greek government and the countries providing assistance – not the ecb governing council. the governing council recently ensured that the provision of emergency liquidity assistance ( ela ) was frozen, and i welcome the fact that further deposit outflows have been stemmed by the capital controls. ela is no longer being used to finance capital flight caused by the greek government. this certainly represents a step forward, and shifts the responsibility to where it belongs : with the governments and parliaments. in any case, the eurosystem should not increase the liquidity provision, and capital controls need to stay in force until an appropriate support package has been agreed by all parties and the solvency of both the greek government and the greek banking system has been ensured. in the event that further short - term assistance is thought to be desirable or necessary, it is up to fiscal policymakers to provide ad hoc financial support. ever growing expectations with regard to the contribution of central banks and the increased role they actually play are more a curse than a blessing. undoubtedly central banks are powerful institutions, but they are well advised to stick to a narrow interpretation of their mandate if they wish to preserve their credibility and independence. 4. conclusion on that note i would like to conclude. in my view, it is plain to see that the core principles of monetary policy i mentioned earlier are still valid. however, one important lesson to be learned, is that we need to pay greater attention to the long - run implications of financial imbalances on price stability. i am confident that this conference will deal with a lot of the aspects i have mentioned in my speech. i firmly believe that this conference will prove that history will teach us more than nothing. thank you very much. bis central bankers ’ speeches