and reputational risks. banking relationships are based on trust ; loss of trust can cause risks of instability, including at a systemic level. the bank of italy must verify that banks ’ organization and internal controls provide adequate protection against risks deriving from business practices that are unfair to customers. proposed rules on the compliance function have been sent to financial intermediaries and the public for consultation ; the related regulations will be issued shortly. transparency of banking business also requires that banks ’ financial statements and other public information on their financial positions be comparable. there has been a significant increase in such comparability in europe with the adoption of international accounting standards. greater convergence is necessary with regard to the methods of classifying impaired loans. adopting the strictest definition of defaulted loans - which includes overshoots and payments overdue by more than 90 days - the figures for italian banks are high owing to the tolerance of late payments. banks must further shorten their reaction times by speeding up the organizational and procedural interventions that have already reduced overshoots from 1. 7 to 1 per cent of the total loans in the last twelve months. 3. 4 payment services technological progress offers plenty of scope for increased competition and greater efficiency in the payment system. the spread of mobile telephony, which can be used to provide financial services, and of cards and equipment prepared by the suppliers of electronic payment services is conducive to the entry into the market of new operators and the growth of innovative payment mechanisms, especially for small amounts. the bank of italy has already authorized the purchase of products over the phone, when they are supplied by the operator of the service and it does not involve the creation of payment instruments for general use. but in view of the evolution of technology and the market the rules on the reserves for electronic money and the collection and transfer of funds will need to be re - examined, in line with the revision of the european rules now under way. access to a variety of competing operators must be ensured, while maintaining the public ’ s trust in the payment system. 4. the bank of italy 4. 1 ownership structure in my recent testimony before parliament concerning the law on the protection of savings, i drew attention to the need to reflect on the implementation of the provision calling for the redefinition of the bank of italy ’ s ownership structure and the transfer within three years of those of its shares held by persons other than the state or other public entities. as i pointed out, it is not up to the

. similar arguments apply to other unconventional monetary policies, such as purchases of foreign currency, which conflict with the responsibilities of the fiscal authorities for the ownership of foreign exchange reserves. a serious problem for the japanese authorities was that the bank of japan was granted independence not long before it became necessary for policy to be coordinated between mof and the boj. 18 inevitably, the desire on both sides to respect the newly - won independence of the central bank came into conflict with the growing realisation that monetary policy was operating in a zero - interest rate environment. the clarity of communication about the objectives of monetary policy diminishes when it is no longer possible to identify clear and distinct responsibilities for the two institutions. a desirable long - term reform - central bank independence - led to short - term difficulties. how large are these effects is an open question. the absence of a compelling general equilibrium theory of liquidity makes it difficult to produce reliable empirical estimates. for the purposes of the equivalence proposition the magnitude of the effect is irrelevant. the legislation was published in 1997, and took effect in april 1998. vi. conclusions i am conscious that i have raised more questions than i have answered - perhaps that is what happens when you become a central banker. i hope i have not copied my room - mate at harvard whose phd supervisor wrote, “ he chewed more than he had bitten off ”. 19 but the search for institutions that improve our ability to handle the two problems associated with public money - the impossibility and undesirability of committing our successors - is never ending, and our knowledge is limited. at the very first gathering of economists to create the american economic association, in saratoga in september 1885, richard ely showed that he had the makings of a good central banker when he said, “ we acknowledge our ignorance, and if we claim superiority to others it is largely on the very humble ground that we know better what we do not know ”. or, in hayek ’ s words, “ it is high time we took our ignorance more seriously ”. the inability to bind future generations means that institutions do not resemble an optimal timeinvariant design chosen from behind the “ veil of ignorance ”. they reflect, in hayek ’ s words, “ how nations in the darkness stumble upon institutions which are in fact the result of human actions, not the implementation of a human plan ”. 20 suitably designed, though, monetary institutions can help to reduce the inefficiencies resulting from the