has to do with another transmission channel, the balance sheet channel. monetary policy tightening is usually accompanied by a decline in the net worth of banks ; this can be reflected in lower stock prices. and banks with a lower net worth tend to decrease their credit supply. however, the authors show that banks with large amounts of excess reserves benefited significantly from the rise in remuneration. these institutions saw a far stronger rise in their net interest income – and ultimately their net worth – than their peers with low reserves. and the authors find that the loan supply of those banks reacted less strongly to the recent hiking cycle than the loan supply of banks with low reserves. in other words, the increasing remuneration of reserves may impede transmission, all else being equal. the minimum reserve requirement is a tried and tested monetary policy instrument that could help to counteract this effect. at this point, i see no reason to rule out a moderate increase to improve the efficiency of monetary policy. just to remind you, over the first 13 years of the euro, the minimum reserve ratio stood at 2 %. for a comprehensive assessment of transmission, it is not sufficient to analyse the interest rates on banks'new business. what also matters is how long it takes for changes in interest rates to feed through into outstanding loans. during the low interest rate period, many borrowers arranged long interest rate fixation periods with their lenders. this will shield them from higher interest rates for some time to come. while this may be positive from a financial stability perspective, it is slowing monetary transmission. all in all, though, we can conclude that transmission across financial markets is currently working well. there can be no talk of overtightening. having said that, it is clear that financial transmission is only the first stage of the process. the second stage is transmitting the impulse to the real economy, and ultimately to prices. if monetary tightening is supposed to reduce price pressure, a dampening of aggregate demand is inevitable. from this perspective, it is encouraging that the monetary tightening is affecting the real economy. nevertheless, dampening aggregate demand does not necessarily mean inducing a recession. i am optimistic that we can avoid a hard landing of the economy, because 4 / 6 bis - central bankers'speeches several factors are moderating transmission : unusually stable, and also tight labour markets, favourable indebtedness levels among firms and households, and strong investment activity. according to bundesbank model estimates, the tightening can be expected to have its

certainly, should it be a matter of decision by politicians, central bankers or financial regulators. certainly, our predisposition is to think that competition will and should determine where business is done and the outcome will depend on the imagination and effort of the managers and controllers of the different markets. there will be lively competition between liffe, the dtb and matif, i am quite sure. and liffe do not need me to argue their case for them. i see from the programme that they are sponsoring the coffee and the tea at this conference. as a regulator it will of course be quite impossible for me to accept such lavish and unreasonable hospitality, but the rest of you are welcome to do so. for the moment, liffe has a dominant position in short - term interest rate futures and is the leading contender to capitalise on that position, whether or not the uk elects to join emu in the first wave. it has already amended its contract specifications and from march 1999 onwards these contracts will settle against the three - month interest rate for euros, a move which has been widely welcomed in the industry. the new euro bond market is likely to support a range of futures contracts, as i have said, and it is not impossible that more than one identical contract will continue to exist post - emu, due to arbitrage opportunities, as happens now between the liffe ’ s and the dtb ’ s bund contract. that will be an interesting competitive arena to watch. as far as otc derivatives are concerned, there is little reason why london should lose its pre - eminent position as a result of emu. otc markets by definition have no centralised trading platform and their location will depend on, for example, the regulatory environment, the availability of staff of sufficient quality and in sufficient numbers and the other success factors i described earlier. it is also worth noting that other changes are under way in the markets as well as emu. the most notable is the advances in technology which have enabled electronic trading to start to challenge traditional open outcry. in response, open outcry exchanges are looking to automate and streamline their trading through technology to reduce costs. and it would seem that the exchange - traded futures industry is coming under some pressure from the otc derivatives market, which appears to be expanding at a more rapid pace. all of these changes will run in parallel with the introduction of the euro, and as far as competition is concerned, success in those areas