of ‘ curing the disease and killing the patient ’? and how can we smooth the adjustment without sowing the seeds of the next crisis? in other words, how can policy avoid tail risks? and at what cost? also, policies designed to avoid tail risks often carry significant risks for central banks ’ balance sheets. this is something that has been studied by professor ricardo reis, who is with us today. such policies, and their reversal in the future, may jeopardise central banks ’ independence and their ability to deliver on their objectives over the medium run. this means we need to understand that central banks need to act when facing difficulty, but at the same time acting could be a big threat to the bank itself. so, when deciding on their policies, central banks need to consider not only the overall economic impact of those policies, but also the possible implications for their own sustainability. these and other difficult questions and trade - offs have been very much present in central banks ’ deliberations over the past ten years ; and they will not go away in the future because they will be present in managing the balance sheet. the second topic that we need to understand is that central banks are corporations and service providers. and related to that are the risks associated with formulating monetary policy and ensuring financial stability, as these activities will impact on their capacity to manage the balance sheet. central banks also face a variety of other risks emerging from their operational activity, extending but not limited to those affecting : asset management ; cash issuance ; payment systems ; information and communication systems, including cyber risks. materialisation of any of these risks may have a severe impact on the central bank ’ s financial 2 / 4 bis central bankers'speeches position and reputation. their prevention needs to be part of the central bank ’ s daily activities. on top of that, as banks with a balance sheet, with responsibility for the assets on the balance sheet and with the needs of a central bank, and also as entities that have supervisory powers, central banks need to set an example for the banking community and the financial system. this means that we need to be the first to introduce new approaches, we need to be the first to think about risks and we need to be the first to spread best practice among the financial community. in a nutshell i believe that to be effective, central banks need to be trusted ; and in order to be trusted, they need : to have the ability to explain their policies and deliver on their

committee on budget, finance and administrative modernisation initial address by governor carlos da silva costa1 23 march 2017 madam chair, members of parliament, i called for this hearing following a series of reports on television about the monitoring work undertaken by banco de portugal – as supervisory authority – on banco espirito santo ( bes ) in the months leading up to its resolution in august 2014. these reports gravely misrepresented the reality of that monitoring, explicitly discrediting banco de portugal's exercise of the supervisory function. as i stated in my letter to this committee, it is my responsibility as governor of banco de portugal to defend the reputation of the institution and protect public confidence in the effectiveness of banking supervision. i see it as my duty to restore the truth behind these facts and to clarify what the reports deliberately ignore, making myself accountable to the assembly of the republic. in my view it is undeniable that, from the outset, banco de portugal was committed to being accountable to the assembly of the republic, transparently and in good time, in regard to the resolution of bes. banco de portugal actively collaborated with the parliamentary committee of inquiry in fact - checking, by providing several depositions, and an immense set of documents that was requested. 1 version prepared for presentation. www. bportugal. pt in this initial address, i see it as important to clarify three questions raised in these reports and explored intensely in the ensuing public debate. first question : why was the board of bes not removed sooner? the law assigns responsibility to banco de portugal, as supervisory authority, for assessing whether the members of the management and supervisory boards of credit institutions meet conditions of : – reputation ; – availability ; – and professional qualification, suitable for guaranteeing sound and prudent management of the credit institutions. in carrying out that function, banco de portugal permanently monitors all the information that is relevant for verifying those requirements. in the specific case of assessing the suitability of members of the board of directors of grupo bes, the note mentioned in the reports in question, dated november 2013, is part of this permanent monitoring exercise of all the relevant information, and was drafted on request of the board of directors of banco de portugal. this note involves personal information which is subject to the right of privacy and which came to banco de portugal's knowledge as a result of its supervisory function, and is thus subject to the duty of professional secrecy by law. for this reason, access to the document