the tax, this approach has the advantage that it is more likely to treat institutions uniformly : the tax on sfts would not be a function of the overall business model of a given firm, but rather just the characteristics of its sft book. this is because the surcharge is embedded into the existing risk - based capital regime, which should in principle be the constraint that binds for most firms. there are a couple of important qualifications, however. first, going this route would involve a significant conceptual departure from the notion of capital as a prudential requirement at the firm level. as noted previously, a large matched repo book may entail relatively little solvency or liquidity risk for the broker - dealer firm that intermediates this market. so, to the extent that one imposes a capital surcharge on the broker - dealer, one would be doing so with the express intention of creating a tax that is passed on to the downstream borrower ( i. e., to the hedge fund, in my example ). second, and a direct corollary of the first, imposing the tax at the level of the intermediary naturally raises the question of disintermediation. in other words, might the sft market respond to the tax by evolving so that large hedge funds are more readily able to borrow via repo directly from money market funds and securities lenders, without having to go through broker - dealers? i can ’ t say that i have a good understanding of the institutional factors that tarullo ( 2013 ). bis central bankers ’ speeches might facilitate or impede such an evolution. but if the market ultimately does evolve in this way, it would be hard to argue that the underlying fire - sales problem has been addressed. 2. modified liquidity regulation a conceptually similar way to get at matched - book repo would be to modify liquidity regulation so as to introduce an asymmetry between the assumed liquidity properties of repo loans made by a broker - dealer, and its own repo borrowing. for example, in the context of the net stable funding ratio ( nsfr ), one could assume that a dealer ’ s repo loans to a hedge fund roll off more slowly than do its own repo borrowings from the triparty market. this assumption would create a net liquidity exposure for a matched repo book, and would thereby force the dealer to hold some long - term debt or other stable funding against it. although

. this discussion is noteworthy, not much per se, but because it underlines the concern that monetary policy is left to act in isolation. indeed, the fact that monetary policy is still effective does not mean that it can support macroeconomic stability on its own. in order to achieve satisfactory growth, it needs to be complemented by budgetary policies aimed at creating appropriate macroeconomic conditions, as well as by further reforms aimed at increasing potential output growth. in the past years of crisis, monetary policy has bought time for the decisions in other spheres of policy see locarno, a., a. notarpietro, and m. pisani, “ sovereign risk, monetary policy and fiscal multipliers : a structural model - based assessment ”, banca d ’ italia, temi di discussione ( working papers ) 943, 2013 ). mario draghi, “ global and domestic inflation ”, speech at the economic club of new york, 4 december 2015 ; vitor constancio, “ in defence of monetary policy ”, 11 march 2016. estimates computed using the banca d ’ italia quarterly model. f. busetti, g. ferrero, a. gerali and a. locarno, “ deflationary shocks and de - anchoring of inflation expectations ”, banca d ’ italia, questioni di economia e finanza ( occasional papers ), no. 252, 2014. bis central bankers ’ speeches making, but beyond a certain limit such a role would inevitably run into unintended consequences. should financial stability considerations interfere with monetary policy? 17. my reading is that it is important to consider the implications of monetary policy for financial stability, but that financial stability depends on adequate nominal growth. it is thus dangerous if monetary policy fails to pursue its own targets. as highlighted in the latest ( november ) financial stability review of the ecb, banks ’ profitability and debt - sustainability continue to be challenged by a weak economic recovery. 18. are concerns for financial instability – due to the very accommodative monetary policy – currently justified in the euro area? it does not seem so. indicators of imbalances in housing and credit markets do not point to increasing vulnerabilities in the euro area as a whole : estimates of over - valuation of residential property prices do not signal widespread risks ( figure 3 ), and the financial cycle is still negative ( figure 4 ). of course, aggregate data may mask hetero