of the european banking union – the single resolution mechanism – comes in. from 2016 onwards, european banking supervision will be supplemented by a european single resolution mechanism for banks. from then on, the banking union will rest on two pillars and provide a stable framework for european financial markets. 4. conclusion ladies and gentlemen, let me return to the beginning of my speech. with regard to regulatory reform we might ask : mission accomplished or mission impossible? at the end of the day, the most probable answer is : a bit of both. regulatory reform will never be completed because the financial system is evolving constantly and regulation has to keep pace. bis central bankers ’ speeches at the beginning of my speech, i identified the crisis as being the problem in the banking system and regulatory reform as the solution. to be sure, there are many people in this world whose profession it is to invent problems in order to sell expensive solutions. as far as financial regulation is concerned, the problem at hand is real : a financial crisis that brought the financial system to the brink of collapse and imposed huge economic and social costs on many people. it is rather obvious that regulators did not invent the problem, and, equally important, the solution we propose is not expensive when measured correctly. i do not deny that stricter regulation translates into higher costs for banks. however, when measured against the burden that financial crises place on society, these costs seem to be justified. but regulation and supervision are only one side of the coin. if we want the banking system to become a safer place, banks managers ’ behaviour will also play an important role. what we need is a change of culture. the times of “ greed is good ” should be long gone. we should see the financial system for what it actually is : a service provider for the real economy. subscribing to this notion of finance will probably be the most important step towards a more stable banking system. thank you for your attention. bis central bankers ’ speeches

than ﬁscal dominance as described by michael woodford : “ in fact, ‘ ﬁscally dominant ’ regimes often do not involve any direct assignment of a seignorage target to the central bank, as in the textbook analysis. instead, ‘ ﬁscal dominance ’ manifests itself through pressure on the central bank to use monetary policy to maintain the market value of government debt. ” [ 10 ] if monetary policy gives in, ﬁscal policy might suddenly be left calling the shots. in the end, if monetary policy has to ensure the solvency of the government, the level of inﬂation would ultimately be determined by the requirements of ﬁscal policy. the impact on inﬂation might not be felt immediately, as some economists have pointed to the role of expectations and learning when people do not have perfect knowledge. if policymakers deviate from the “ virtuous regime ” of monetary dominance, private agents may nevertheless expect that they will return to it soon enough to preserve price stability. but over time, if agents become more and more convinced that the deviation is not short - lived, inﬂation may accelerate. the drift in beliefs might hardly be detectable initially, but can gain momentum later and might appear, to an external observer, to have come out of the blue. to safeguard price stability in the long term, monetary policy relies on a sound ﬁscal policy. this is the story told not only by economic theory but also by historical experience. just think about the united states in the 1940s and early 1950s. back then, the federal reserve and the treasury had agreed to maintain relatively stable government bond yields. the arrangement was eventually terminated, but only when it came to be seen as “ an engine of inﬂation ”. against this backdrop, mervyn king ’ s famous words might come to mind : “ central banks are often accused of being obsessed with inﬂation. this is untrue. if they are obsessed with anything, it is with ﬁscal policy. ” [ 13 ] a monetary policy geared to price stability needs a ﬁrm foundation that has to be laid by others. one cornerstone of that foundation are sound public ﬁnances. a further building block is monetary policy independence. we need that independence in order to pursue the objective of price stability even when conﬂicts with other policy goals arise. in the current environment, monetary and ﬁscal policy are working in harmony – without any coordination. their respective goals are aligned