well - respected academics. however, these petitions are perhaps not as incompatible as it might appear. obviously, one comes to different conclusions if the reasoning is based on different assumptions. and the different assumptions stem from the various interpretations of the results of the european summit in june. the core statements of the petitions about the banking union are not disputed. for me, these core statements are : “ there should not be unconditional collective accountability for the debts in the euro area ” and “ banking supervision in europe needs to be harmonised and improved. ” and although not everybody may agree with the style and details of the different petitions, most people probably concur with these two main messages. i, for my part, concur with both statements. bis central bankers ’ speeches both messages are related to a question which is central in economics – and which is also a topic for our conference : what role should we assign to the state? and what role should markets play? the role of the state ten or even five years ago, the opinion in the academic world was relatively unanimous with respect to the role of the state in the banking sector : the state and regulators were seen as an obstacle to economic growth, and state - owned banks were perceived as the flotsam and jetsam of free market economies. “ let the market deal with the issues of the financial sector, and capital and risks will be efficiently allocated, ” most academics argued. a saying attributed to the well - respected former bavarian prime minister franz - josef strauss comes to mind : “ a dog is more likely to put away a sausage for a rainy day than the state is to save money. ” then came the financial crisis. the distrust in the state among mainstream academics has remained. however, there is now distrust in markets as well, perhaps surpassing distrust in the state. in the academic community and the media, there has been a debate about excessive bonuses for bankers, about distorted incentives for risk - taking in banks and, last but not least, about the role of rating agencies. to my mind, the crisis has shown that, like it or not, the state is needed as the ultimate guarantor of systemically important functions of the banking sector. in a systemic crisis, deposit insurance schemes can succeed only if the state, and thus the taxpayer, credibly guarantees the liabilities, as illustrated, for example, by the tv appearance by chancellor merkel and finance minister steinbruck in 2008, in which they guaranteed all banking

##pan ( 1996 ) said ten years ago, it “ cannot be acceptable in a democratic society that a group of unelected individuals are vested with important responsibilities, without being open to full public scrutiny and accountability. ” transparency is of little use if markets and the public do not believe what a central bank says. credibility is therefore a condition that is a sine qua non for a successful monetary policy. how can credibility be established? alan blinder ( 1998 ) summarises credibility as a " painstakingly built up history of matching deeds to words ". a long history of actually matching deeds to words, of honest communication and a reputation for delivering price stability will therefore ensure central bank credibility. in practice, only a small number of central banks can draw on a sustained history of successful monetary policy, amongst them, the federal reserve, the bundesbank and the swiss national bank. fortunately, in recent years, an increasing number of central banks are rapidly accruing credibility in that painstaking process referred to by alan blinder. 6 when we think about expectations, transparency and credibility in the context of monetary policy, it is important to remember that they cannot and should not be substitutes for action. it is often said that a see for example mckinsey ( 2005 ), where it is shown that the ratio of the global financial stock ( including equity, debt securities and deposits, but excluding real estate ) was roughly three times the size of world gdp in 2003, while it was about equal to world gdp in 1980. the growing importance of balance sheet considerations in monetary policy was noted by alan greenspan in his reflections on central banking at the jackson hole symposium 2005. " in particular, our analysis of economic developments almost surely will need to deal in greater detail with balance sheet considerations than was the case in the earlier decades of the postwar period. the determination of global economic activity in recent years has been influenced importantly by capital gains on various types of assets, and the liabilities that finance them. our forecasts and hence policy are becoming increasingly driven by asset price changes. " in the past 15 years, more than 20 central banks around the world changed their monetary policy framework in favour of inflation targeting strategies. by successfully bringing down inflation and by prioritising communication and transparency, most of these central banks have greatly increased their credibility. high level of transparency in conducting monetary policy means that the central bank has less work to do, because stating clear intentions will induce financial markets to do some of the work