behavioural insights for conduct supervision introductory remarks by luigi federico signorini deputy governor of the bank of italy banca d ’ italia / finconet international seminar on financial consumer protection rome, 15 november 2019 it is my great pleasure to open the international seminar on financial consumer protection, jointly organized by finconet and the bank of italy. the theme of this seminar is the subject of much discussion and a driving force in the evolution of business conduct regulation and supervision. behavioural economics has provided important insights. we would be well advised to take them into account when framing regulations and performing supervisory tasks in the financial sector. understanding how people make economic choices is central to economics. economic models, however, will never be able to do justice to the full range of motivations, reasoning and impulses behind human behaviour. economics needs to simplify and select. at the same time, it needs to remain open - minded enough to see the pitfalls of simplifying assumptions. economic models have always been challenged over time, with new approaches subverting the conventional wisdom of the day ; as in all sound science, progress in economics has been driven by people challenging received wisdom, pointing out its flaws, and proposing corrections. yet it has always retained the basic concept that agents will respond to incentives and that in most circumstances the collective wisdom resulting from innumerable fallible individual choices is superior to comprehensive top - down planning, enlightened as the latter may be. adam smith did not have to invoke utility maximisation to conceive of the invisible hand, nor did ricardo to discover comparative advantage : two of the most counterintuitive, and most enduring, cornerstones of economics. ronald coase famously stated that “ there is no reason to suppose that most human beings are engaged in maximising anything unless it be unhappiness, and even this with incomplete success ” ; yet this ( half tongue - in - cheek ) assertion did not prevent him from formulating a theorem about the superiority of private contracts even with externalities, provided property rights are carefully laid down. 1 ¹ actually, as is well known, coase did not formulate a “ coase theorem ”, but he did lay down the theoretical foundations to what is known by that name. contemporary mainstream economics makes abundant use of formal models that specify what precise quantity is being maximised, and assume that agents make efficient use of whatever information is available. while such assumptions are extremely useful for developing insights into how the world

administration and branches, with a rethinking of their tasks and structure, and reconsidering the role of the italian foreign exchange office. these are the lines of action to be undertaken. in tackling the evolution of the bank in these new circumstances, the contribution of the staff and of the trade union representatives is essential. in a few days ’ time i shall set out these strategy guidelines to them in practical terms, confident that they will share my belief in their necessity. at its next meeting the board of directors will discuss the proposed amendments to the statute of the bank, in compliance with the new legislation. this begins the mandated procedure, which will culminate in examination by the government and the issue of a decree by the president of the republic. i know, to borrow an expression from guido carli, that my strength is not equal to the objectives. i would doubt ever being able to attain them if i could not count on the integrity, professional competence and sense of institutional responsibility of the entire staff of the bank. but there is also something else on which i am certain i can rely : the rightful pride of this institution, which has always transformed difficulties into a spur to growth. in the bank of italy, which from einaudi to ciampi has provided the nation with presidents of the republic, prime ministers and cabinet ministers, i have found an institution of excellence, where the nobility of public service is deeply felt. it is to that service that i, like other governors before me, intend to dedicate my efforts. it is from this collective sentiment that i shall draw my strength. returning to growth the cyclical recovery that is now beginning in italy cannot by itself solve the growth problem that has afflicted the country for more than a decade, but it will facilitate the necessary structural changes. if slow growth persists for long, it stifles an economy ’ s ability to innovate, saps the aspirations of the young and portends regression. it is especially worrying in a country such as ours, with its adverse demographic trend and high public debt. financial stability is a necessary condition for economic growth, but in italy growth is in turn a prerequisite for financial stability. it is essential, while preserving the one, to rekindle the other. the international context in the last two years the world economy has grown at an average rate of 5 per cent, the euro - area economy at an average of 1. 7 per cent. world