sabine lautenschlager : dealing with a globalised banking sector statement by ms sabine lautenschlager, member of the executive board of the european central bank and vice - chair of the supervisory board of the european central bank, at george washington university law school, washington dc, 16 october 2017. * * * ladies and gentlemen, today we can look back on nearly a decade of rule - making. following the financial crisis of 2008, almost no stone was left unturned – at least in the field of banking regulation. but this wave of re - regulation didn ’ t just focus on banks ; rules were put in place to increase consumer protection and regulate the derivatives business, central counterparties and rating agencies. in many countries these changes were accompanied by institutional changes – new authorities were set up to deal with financial risks, and they were given new powers and instruments to mitigate these risks. authorities gained a whole new set of tools for macroprudential oversight. the reforms were far - reaching in many countries, and in particular in the major financial centres. and i am convinced that this overhaul will contribute to future financial stability. there are two main reasons for this. first, deregulation and light - touch supervision were a significant cause of the financial crisis in 2008. in the early 2000s many believed in the self - regulation of the financial market – so restricting the entrepreneurial freedom of financial market participants was not at the top of governments ’ to - do lists. this all changed with the financial crisis, which was costly for banks, their investors and the taxpayers in many countries. in addition, the crisis was followed by an economic recession. banks, for example, now have to comply with a strict set of rules – they have to hold more and better capital than they did ten years ago. their capacity to absorb losses has increased significantly. banks are better prepared for a potential drying - up of liquidity sources, as the quantitative and qualitative requirements regarding liquidity management have risen significantly. this makes banks more resilient to potential economic downturns or major unexpected events. and supervision has changed quite dramatically, too. many supervisors have been given greater powers to act pre - emptively ; the set of supervisory tools and resources has expanded considerably. supervisors are therefore able to pick up on deficiencies in banks, risky trends and misbehaviour earlier and more decisively than before the crisis. does this mean that there is no room to improve the current rules

the principle of central bank independence, and the need to secure sound public finances for sustainable growth. more than a decade after the signing of the treaty, the “ maastricht consensus ” regarding these objectives and principles remains valid. at the same time, the conduct of the single monetary policy and of national economic policies and the interaction between them continue to be debated by both academics and policy - makers. the debate relates to several issues and reflects concern regarding policy effectiveness. one issue is the optimal assignment of policy objectives to instruments. another is the appropriateness of the strategies employed by the authorities to achieve their objectives. a third topic, which has been the subject of discussion among economists for many years, concerns the merits of adopting rules versus exercising discretion in the conduct of policy. in my address, i will concentrate, first, on the strategies employed by monetary and economic authorities to maintain price stability and foster higher sustainable growth and, second, on the role and effectiveness of rules versus discretion in policy implementation. in the context of the euro area economy, the assessment of the formulation and implementation of policies must take into account, among other things, the european union ’ s institutional setting. ii. the single monetary policy : strategy and implementation i will examine these issues by focusing, first, on the single monetary policy. as you may recall, in 1998 the governing council of the ecb adopted an explicit monetary policy strategy. it is a rather novel strategy, one which is particularly appropriate for the special characteristics of the euro area economy. it incorporates many elements of the successful monetary policy strategies employed by the national central banks of the euro area before 1998. it provides a consistent, coherent framework both for internal analysis and decision - making and for explaining to the public the decisions made. last year, following a thorough evaluation, the governing council confirmed and further clarified this strategy. there are many reasons for arguing that the ecb ’ s strategy is well suited to the conduct of monetary policy in the euro area. one argument is that our strategy is rather robust, as it takes into account a comprehensive set of information based on a variety of analyses and empirically plausible models, which help the ecb to take appropriate monetary policy decisions in an uncertain and ever - changing environment. indeed, the common challenge confronted by all central banks is to make decisions under conditions of uncertainty. therefore, the ecb, in seeking to maintain price stability, has to analyse all available information carefully and continuously in order to arrive at a comprehensive assessment of developments