provided to creditors – especially retail ones. all this, in a world of asymmetric information, can indeed be a source of serious liquidity risk and financial instability. the specific nature of the banking sector and the objective of financial stability should also be treated in a more structured way in the european commission ’ s approach to competition and state aid. adopted in 2013 – and based on the unfortunately premature conviction that the difficulties of european banks had by then been dealt with – the current approach greatly limits government intervention to support banks that are fundamentally viable in order to remedy market failures or negative externalities that are not originated by managerial shortcomings. indeed, according to the brrd, any public intervention that counts as state aid ( and is not among the very few exceptions allowed by the directive ) automatically triggers the resolution procedure. this, in turn, determines an overlap and, as a result, the prevalence of competition and state aid policy objectives over the objective of safeguarding financial stability. in other words, sufficient account is not taken of the fact that financial stability is of vital importance to the real economy. * * * to conclude, in the financial sector there are certainly risks of moral hazard as well as abuses and frauds, which the authorities, including banking supervisors, must prevent as effectively as possible. but prevention is not always possible and in periods of poor macroeconomic conditions risks of malpractice inevitably rise. this is why we need an overall resilient system, with banks well capitalised, better managed and more transparent, costumers with higher levels of financial education and authorities with severe sanctioning powers. this notwithstanding, we have learned that market failures are not infrequent, and information asymmetries and expectations ’ coordination problems may trigger sudden and possibly long waves of euphoria or panic. it is by now clear that markets are not always self - equilibrating and when they fail the consequences may be rather serious. on the other hand, markets should operate as much as possible without their force being bridled. there is no foolproof formula for striking this balance. clear rules, impartially applied, are essential, but so is the ability to make sound and timely decisions in the light of circumstances. in the case of banks, this calls for the possibility to recur to public backstops, and in a union like ours also a supranational one, in the presence of systemic risks and risks of contagion. this is

story is that it may be risky to infer from the observation that inflation expectations are stable that all is well. there will be times when large and persistent shocks occur, and it would be unwise to count on inflation expectations remaining stable when actual inflation starts to deviate substantially from its recent range. so those are the three lessons that i have learnt from alan : ( i ) a recognition that economics is not a set of doctrines but a way of thinking ; ( ii ) the importance of using qualitative and quantitative information from a range of sources ; ( iii ) there are a small number of fundamental objectives that are crucial and which we can judge by the greenspan yardstick of whether we have freed businesses and households from the burden of expending resources to deal with unnecessary policy volatility. alan ’ s departure from the central banking scene will deprive us of a source of wisdom, inspiration and leadership. to be sure, alan ’ s words, whether spoken or written, will surely still reach us from the sidelines. to use a tennis analogy, i see alan as the central banking equivalent of the non - playing captain of a davis cup team, encouraging the younger and less talented members, and stressing the importance of footwork, timing and getting into position early. alan, thank you for raising the respect which others give to our discipline of economics and our profession of central banking. transparency in monetary policy. at the federal reserve bank of st. louis, economic policy conference, st. louis, missouri, october 11, 2001. this definition was set out much earlier, in similar terms, in alan greenspan ’ s statement before the committee on ways and means, u. s. house of representatives, january 25, 1990.