the risk of a conflict between policy objectives that could hurt the credibility of monetary policy. several concerns have been expressed. thus, the realisation of the reputational and legal risks that supervision entails could damage the credibility of the monetary policy function. furthermore, the incentive and, crucially, ability of the supervisor to practice forbearance towards a regulated institution which is facing difficulties is greater when the lender of last resort and the supervisor are one and the same. finally, for certain shocks the appropriate policy response of low interest rates or abundant liquidity provision may fuel asset prices, jeopardising financial stability and the price stability objective. while the concerns are real, in my view there are several mitigating factors : first, the design of the governance framework is critical. the primary objective for monetary policy must be price stability and the membership in the decision - making bodies for monetary policy and banking supervision should differ. second, the geographical perspectives of banking supervision and monetary policy are likely to differ. while monetary policy is union wide, banking problems are likely to remain national. it seems unlikely that the realisation of financial instability in one or a few countries will lead to changes in union - wide monetary policy. third, episodes of financial instability are contractionary. i suspect that a careful review of financial history would provide little support for the view that periods of high inflation have been triggered by episodes of banking instability. fourth, a conflict between the monetary policy and financial stability objectives is only likely when a large, expansionary aggregate supply shock occurs. in this case, the text book prescription until now has been to relax monetary policy to permit rapid non - inflationary growth, leading to a risk of excessive credit expansion and a bubble forming. however, macroprudential policy is available to deal with the asset price consequences of expansionary monetary policy. a ssm is also likely to be helpful for monetary policy from an information perspective. for instance, in implementing monetary policy, central banks require their counterparties to satisfy certain criteria, most obviously being solvent. moreover, emergency liquidity assistance shall only be provided to solvent banks. thus, there is an on - going need for the central bank to have at least some information about individual banks. furthermore, in setting monetary policy it is important to have a sense of how a change in policy is transmitted through the banking system to the broader economy. also this information flows more easily if the supervisor is not too distant from monetary policy makers. bis central bankers ’ speeches

drawn out drip - feed process of nama tranche announcements based on each successive size - tranche was in prospect. in order to avoid this, nama agreed to conduct a sample review of the full range of tranches. the resulting estimated all - tranche nama haircut for each bank was the basis of the end - september announcement which led to an increase in the required capital of aib, and to confirming the judgment that aib would not be able to raise all of the needed capital from the market. the costs of anglo depended even more heavily on its nama haircuts, given the relatively high fraction of its portfolio being transferred. on the other hand, not being in the market to raise capital, an official judgment on the expected losses for its non - nama book was not needed until the final decision was taken by government on that bank ’ s future. nevertheless, it was important to acknowledge that the surprisingly high first tranche haircut for anglo, if read across to the rest of the nama - bound book, already at that point implied an astonishing figure of at least €22 billion for the net long - term fiscal cost to the state, given the relatively aggressive provisioning already made then by the new management on the non - nama book. as is well - known, nama ’ s estimated all - tranche haircut has somewhat increased this. in addition, the management ’ s evolving estimates of the prospective loan losses embedded in the non - nama book have also been increasing, leading to our recently published estimate of the additional capital required to capitalize the resolution and funding entities into which anglo is to be resolved. ( by the way, as accounting specialists you will recognize that required capital is different to net cost : if the expected loss projections prove to be accurate, the net long - term fiscal cost will be lower than the required capital sum to the extent that the tender offer on subordinated debt is successful and to the extent that residual capital remains at an eventual wind - up. ) to summarize, then, four main components have been key to arriving at a total cost figure for the losses created by the bubble, and exposed by its bursting : nama ’ s first tranche haircuts and the central bank ’ s non - nama expected loss estimates for the main banks ( both published in march ) ; nama ’ s estimated all - tranche haircuts and the central bank ’ s required capital estimate for anglo,