narayana kocherlakota : opening remarks opening remarks by mr narayana kocherlakota, president of the federal reserve bank of minneapolis, at a “ conversations with the fed ” event, federal reserve bank of minneapolis, minnesota, 9 january 2014. * * * thank you all for coming out tonight to take part in this public discussion about the federal reserve, monetary policy and the economy. as many of you know, this event is part of a broader series that we call conversations with the fed, which has featured presentations on issues ranging from financial payments to the health of the banking industry to the size of the fed ’ s balance sheet. all of these events have been well attended and, like good economists, we have duly noted this demand and plan to continue to supply these events in the future. today ’ s conversation is taking place in the headquarters of the ninth ( of 12 ) federal reserve districts. but the ninth district is a far - flung one that includes the states of montana, north and south dakota, minnesota and parts of wisconsin and michigan. for that reason, we hold similar conversations throughout the ninth district. indeed, we ’ re redoubling those efforts this calendar year in honor of the centennial of the opening of the 12 reserve banks and the start of the work undertaken by the federal reserve system. the video that we just watched gives you an overview of some of that work by the people who are actually doing it : the many employees of the federal reserve system. we also have a new website we ’ ve created at federalreservehistory. org. i encourage you to visit this site to learn more about the people, places and events that have shaped federal reserve history. there are some fascinating historical tidbits on the website that i could go on about at length, but i realize you all may not be quite as excited about fed history as i am. i will say that if you have even the slightest curiosity about things like how the cities were chosen to host reserve banks, i would encourage you to attend an installment of conversations with the fed on may 8. it will feature niel willardson, our general counsel and corporate secretary, who be talking about the history of the federal reserve act and answering the perennial question of why minneapolis and not st. paul. i won ’ t steal niel ’ s thunder for that presentation, but i do want to address one of the things that i think has changed the most over the federal reserve ’ s history, and

deepen the integration of the capital markets in order to improve risk sharing. experience from the usa tells us that integrated markets for capital cushion around 40 % of total cyclical fluctuations between the us federal states. together with credit markets and fiscal buffers, this cushions almost 80 % of an economic shock in the us. the situation in europe is slightly different : here, it is primarily the credit markets which act as buffers – and not particularly effectively at that. all told, just 40 % of a shock is cushioned in this way. so boosting the role of the capital markets and integrating them more effectively across national borders would indeed help to improve risk sharing in europe. together, improving both funding of the real economy and risk sharing will make the european capital markets union a worthwhile project – and i believe that the experiences we gather from this initiative may also be of interest for the asian economic area. 4. the european capital markets union – a blueprint for asia? of course, i am not calling for an asian capital markets union. the situation in the eu is quite different to that in asia, of course. nevertheless, cross - border transactions among asian countries gain in importance when it comes to infrastructure projects. and i do believe that asia ’ s infrastructure - related funding needs will require financing from non - asian investors as well. this leaves me in no doubt that the renminbi clearing hub here in frankfurt will prove to be particularly beneficial going forward in attracting european funds for asian projects. but in general, more deeply integrated global financial markets – accompanied by sound regulation to avoid negative spillover effects and financial contagion when the going gets tough – might be an answer to the challenges which asian economies are currently facing. this is because, bis central bankers ’ speeches at the end of the day, the european capital markets union is implementing the well - known principles of good financial sector governance. simple though this may sound, the european capital markets union shows us that putting these principles into practice will be far from easy. the capital markets are a complex beast, and capital market funding comes in many shapes and sizes. corporate bonds, private and listed equity capital, venture capital and peer - to - peer loans are just some of the instruments in the market. and deeper integration affects not just the financial instruments themselves but also integral components of the respective markets, like exchanges and central counterparties. let me stay with that last point for a moment, because the importance of effective and robust financial market infrastructures