risks. our successful and solid anchoring of inflation expectations has protected us, i trust, very well against the materialisation of inflation risks – but also against the materialisation of deflation risks. financial times : and what about deflation in the united states, is that different? jean - claude trichet : i fully rely upon the analysis of the federal reserve. financial times : but how serious do you think is the present weakness of the american economy? jean - claude trichet : i would say, again, that i rely very much upon the fed ’ s analysis, which i have to say over the crisis has been wise and pertinent. there was a level of hype at certain moments, when we were getting out of the crisis, which perhaps did not fully reflect the situation of the real economy. and now there is a mood which seems to me too negative. that ’ s my own personal feeling. financial times : let ’ s talk about the pace of financial reform, regulation. why were the reforms as proposed under basel iii watered down? jean - claude trichet : i do not want to prejudge in any respect the upcoming meeting we have on this issue. i will only say that we need the same rules at the global level, a level playing field globally. and now at the global level we have the full participation of the emerging world, which, by the way, is one of the major structural transformations of global governance over the last three years. the g20 has substituted for the g7 as the premier forum for international economic cooperation. we have also profoundly transformed the global governance of central bank cooperation with full ownership by the central banks from emerging economies. that is something which i would call a “ silent revolution ” in global governance. one thing is certain – and i ’ m sure that all my colleagues share this view : we cannot again in the next years be put in a situation where the financial sector is about to collapse in the advanced economies and at the global level, or a situation in which it is necessary on both sides of the atlantic, for taxpayers to put approximately 27 per cent of gdp on the table to stabilise the system and avoid a major global depression. we cannot do that twice. the people in our democracies would not accept that. this is not, of course, to say that the 27 per cent of gdp was spent or lost, but that was the level of additional taxpayer risk that had to be put on the table

##ing has increased. the rise in overnight deposits is in part a mechanical effect of asset purchases, which increase deposit holdings of those selling bonds to the eurosystem. it also reflects the long period of very low interest rates that sharply reduced the opportunity costs of holding “ money - like ” claims. both of these effects can be expected to reverse as we remove monetary policy accommodation. when we last increased interest rates, from 2005 until mid - 2008, overnight deposits as a share of total deposits fell by about seven percentage points as firms and households shifted savings into less fungible term deposits that earn a higher rate of remuneration, a development that started only recently in the current hiking cycle ( slide 11, right - hand side ). however, even if funding became more stable again over time, banks would be likely to want to hold larger liquidity buffers to meet potential outflows. [ 16 ] and they would want to hold such buffers, at least in part, in central bank reserves as these do not need to be liquidated and, unlike marketable safe and liquid assets, are not subject to valuation changes. the current environment vividly demonstrates that such valuation changes can be a source of instability for banks and markets. steering interest rates when the demand for reserves is uncertain these developments do not necessarily suggest that a return to the pre - 2008 corridor framework is undesirable or infeasible. after all, reserve demand may become more predictable over time and balance sheet run - down will increase the availability of marketable hqla which banks can use to comply with their regulatory requirements. but they do suggest that it may have become more difficult for central banks to correctly anticipate the demand for reserves and hence to steer interest rates in a wide corridor, and that such steering would entail a higher operational burden, both for the central bank and the banking system at large, with the need for more frequent fine - tuning operations. what, then, might be the alternatives to the pre - 2008 corridor framework? the recent experience of other major central banks suggests that policymakers have two broad options : one is to formally adopt the current floor system by maintaining a sufficiently large bond portfolio on the asset side ; the other is to offer, either in a floor or a narrow - corridor framework, regular collateralised lending operations that ensure that banks are able to maintain their desired level of reserve holdings as balance sheet reduction proceeds. while both options can be expected to have a similar capacity to maintain control