under such market conditions – the temporary inability of banks to provide refinancing leads to insolvency and thus to a situation of widespread default. in neither of the two cases – normal times or crisis periods – can the central bank be considered responsible for the survival of bank counterparties that are close to bankruptcy. ] in a recent paper entitled “ a monetary policy strategy in good and bad times : lessons from the recent past ” ( ecb working paper, no 1336, may 2011 ), s. fahr, r. motto, m. rostagno, f. smets and o. tristani simulated a “ counterfactual ” monetary policy strategy which did not include credit and money among its variables of observation and reaction. the authors found that as a consequence of the shock caused by the collapse of lehman brothers, the euro area would have entered into a protracted period of deflation and the level of gdp at the end of 2010 would have been 2 percentage points below that which was observed. bis central bankers ’ speeches the two long - term refinancing operations achieved the purpose for which they were intended. in an environment of a near - shutdown of private credit markets, banks were not able to refinance their assets and were unable to maintain their level of exposure to households and businesses. the extensive long - term refinancing allowed for the partial and temporary substitution of private credit with central bank money and thus avoided a disorderly process of credit to the economy running dry. nevertheless, these operations were not without their criticism. these can be summarised in three points : 1. the growth in liquidity following the two operations will ultimately lead to inflation ; 2. the eurosystem ’ s balance sheet is exposed to unprecedented and uncontrollable risks ; 3. such operations have reinforced the perverse link between banks and sovereign debtors and may be considered a violation of the prohibition of financing public debt with central bank money, laid down in article 123 of the treaty. and, the opposite – but conceptually equivalent – criticism that these operations did not provide the economy with finance. as regards the first point, it is again pertinent to refer to strategy : in the medium to long term, the inflation dynamic reflects developments in broader monetary aggregates. conditions that encourage the creation of inflation or speculative bubbles are generated by strong and sustained growth in money and credit, not necessarily as a result of an increase in liquidity granted by the

to preserve the local operations. the fourth impediment is the need to preserve global payment operations. the cash management, cash payments, securities settlement and custodial services that some firms offer to wholesale and retail clients are essential to the functioning of clients, the economy and the financial system, but such services have high switching costs for customers. these services often represent core business lines with stable profitability and thus valuable assets for financial firms, but they are also often entwined with other businesses in the firm. the fundamental nature of these activities and their importance to the financial and real economies make them of special interest to the financial authorities reviewing recovery plans and developing resolution plans. the four impediments are all related to institutional complexity. a financial firm organized as a single legal entity would certainly face many complexities, but far fewer than organizations today. this clearly raises the issue of whether the extraordinary organizational complexity of financial firms today imposes social costs that are too burdensome, especially in resolution, relative to its benefits. the economists dick herring and jacopo carmassi earlier this year documented the reasons for the vast number of subsidiaries at large financial firms, reasons such as regulatory requirements, regulatory arbitrage and tax avoidance. if such organizational complexity imposes a high social cost by impeding recovery plans and resolution, providing incentives to reduce complexity may be warranted. for example, collateralization or capital requirements on intragroup exposures or parent guarantees could internalize for the firm some of those social costs. alternatively, more direct supervisory requirements may be necessary for addressing the improvement of information systems or the separability and preservation of critical payment systems. but such measures have costs and i would argue increase the relative benefit of efforts to identify the no doubt very difficult changes necessary in both the private and the public sectors to reduce organizational complexity in financial firms. i note that the cbrg report not only has recommendations largely addressing the four impediments to recovery i described, but also a recommendation to simplify financial firm organizational structures. a final benefit of recovery planning is that it is a prod to concrete action in the near term, when the institution is healthy and provides a ready - made menu of options when the firm is distressed. moreover, the impediments to recovery are also impediments to resolution. if the recovery plan does not succeed in averting failure, but the firm has acted on the plan, it will enter resolution with better information systems, a reduced risk profile and