##cyclical requirements may provide little or no relief. one possible solution is to offer – or impose – ex ante liquidity and capital insurance. over the last two centuries liquidity insurance in times of stress has been provided through the lender of last resort. proposals have been made to explicitly price that insurance which would better internalize its cost. capital insurance, has also been suggested, among others, by kashyap, rajan and stein and can be seen as a new – and potentially powerful – way to provide contingent support. • looking beyond individual institutions, the robustness of the system as a whole depends on the solidity of some of its key components ( the " nodes " in the language of networks ). this is to day perfectly understood and it is widely expected that " systematically important institutions " will, in the future, be subject to more stringent regulatory requirements and closer supervision. this may, or not, be related to their size. " too big to fail " certainly warrants special treatment. but, the position and role of even smaller or medium size actors may also put them in a situation to have a strong influence on the system's dynamics. • ultimately, however, robustness in complex financial systems may be best addressed by shaping the structure itself of those systems. without prejudice to the answer, the crisis makes it legitimate to ask whether some separation or segmentation of financial activities between institutions with different legal status and abilities would be justified. while it is grossly exaggerated to argue that the abolition of glass - steagall is a cause of the present crisis, a case can be made for regulating activities that a same institution is allowed to engage into, thus limiting the potential interactions and feed back loops it can create or to which it would contribute. • finally, complexity can be limited through standardization of financial instruments. such standardization would bring two benefits in : it would make products more transparent, hence their behavior more predictable and would reduce or eliminate uncertainty created by the loss of information. and, second, it would allow them to be traded and / or cleared in organized exchanges and clearing houses, thus reducing by a considerable scale the size and complexity of the network of bilateral counterparties. current efforts to set up central counterparties and clearing houses for credit derivatives are clearly a major step in that direction. obviously, there is a trade off since standardization could create obstacles to financial innovation. but it is also true that contemporary financial innovation, by creating enormous complexity in the financial

francois villeroy de galhau : five lessons learned for monetary policy from the latest years remarks by mr francois villeroy de galhau, governor of the bank of france, at the paris school of economics, in discussion with olivier blanchard, paris, 28 june 2023. * * * looking at the last three years, which were rich in unexpected events, i would risk two general lessons, and three more technical ones : 1. the first is that we must remain modest, humble : monetary policy is not omnipotent ; it cannot be the only game in town. and we must be nimble, able to react to surprises with agility. 2. that said, monetary policy was efficient in preventing deflation during covid - while not creating the present inflation. 3. on a more technical note : we certainly should work with less forward guidance. i wouldn't throw it away completely but if we use it again in the future, forward guidance should be ( i ) state dependent and not calendar based except in the very short term ( ii ) indicative and not committing. 4. we should keep our inflation target of 2 %. it served us well, explaining in part why inflation expectations remain rather well anchored ; we shouldn't change it, while keeping in mind that the target is for the medium term. 5. transmission lags are a key question, and we should dig more into this issue. in my view, transmission of monetary policy in this cycle is not weaker but slower, for three reasons : the starting point : the balance sheet of corporates as well as of households was very strong after the exceptional covid support ; fixed rate mortgages have significantly increased in share, and are now predominant in many jurisdictions. it's nevertheless good news for financial stability ; the higher proportion of services in the economy, which are less directly sensitive to interest rates. non - housing services now represent 49 % of core hicp basket in the euro area, compared with 41 % in 2001. in a recent speech, 1 i suggested that the lag could be up to two years. hence, " length " is still more important than " level ", to quote the two dimensions mentioned by christine lagarde recently2. we stated in our last monetary policy statement that " the key ecb interest rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to our 2 % medium term target and will be kept at those levels as long as necessary ".