banks on a tighter rein so as to avoid any recurrence of a financial crisis such as the last one. in the united states, however, things seem to be moving in a different direction ; the new us president donald trump has signed an executive order for a review of the dodd - frank act, which provides for the tighter regulation of banks. are you concerned that this may open the door to another financial crisis? it is still too soon to make a final assessment because we don ’ t know exactly what the us government wishes to review or which areas of the dodd - frank act, which numbers hundreds of pages, are being targeted for amendment. overall – yes, it is true that we are keeping european institutions on a tighter rein, as you put it – i think the financial regulation has turned out well. we will need to review some aspects over the next ten years to see if there have been any unintended consequences. but on the whole, i think it is imperative that we do not take a leap backwards, especially not on an international scale, but rather ensure that we continue to provide the banking sector, which is indeed global, with a set of international rules. yes, but when the main player – the united states, which is home to the world ’ s major banks – deviates and deregulates, what does that mean for us here in europe? we ’ re not at that stage yet. as i said, it ’ s too early to judge what exactly will be addressed in the united states. the dodd - frank act contains many national rules, which, if they were to be revoked, would have no impact on europe as such. will there be competition for a more relaxed regulation? not from our side. i don ’ t believe in more relaxed regulation. nor do i believe in excessively tight regulation ; there must be a happy medium that enables the institutions to provide the real economy with the financing and services that it needs so much. we have seen, precisely in 2007 and 2008, what happens when regulation is too weak, when we trust in the self - discipline of the markets. are you already in talks with the united states? i have been speaking with my us colleagues for many, many years and, of course, over the past month too. and i will also speak with them over the next few years. but again, it is still too early to form a judgement. so far there is just a general tendency and a statement that they want

enabling investors to transfer resources efficiently across time, space and states of the world. but this idea relied on the presumption that the world is basically stationary ( and substantially linear ), that the future is pretty much like the past, that we can extrapolate from relatively small samples, and that there is a single “ data generating process ” that we can identify and understand. ( we must admit that all this is not limited to finance but also applies more broadly to macroeconomics, econometric modelling and forecasting. ) the real world is different, though ; for many years the big investment banks were able to sustain returns much higher than what was justified by economic growth, but the day of reckoning was bound to come. in a way, innovation, based on the presumption of stationarity, sows the seeds of the non - stationarity that eventually undermines that very presumption. ● complexity was also used, somewhat perversely, as part of the case for a sort of benign neglect on the part of regulators. the big financial players argued successfully that financial innovation was too complex and too opaque for the regulators to get their heads around it. indeed, they said, to safeguard the international financial system from systemic risk, the main priority was promoting an “ industry - led ” effort to improve internal risk management and related systems. this, in a nutshell, was the view espoused by the group of thirty report following the outbreak of the asian crisis ( “ global institutions, national supervision and systemic risk ”, group of thirty, 1997. see also the article by john heimann, and comments therein, in the special issue of the banca nazionale del lavoro quarterly review on “ globalization and stable markets ”, march 1998 ). but this thesis was often accompanied by the argument to the effect that “ you, regulators and supervisors, will always be behind financial innovation ; it would be better to allow us, the big financial international players, to self - regulate ; we are grownups, we can take care of ourselves ”. and, after all, “ if someone makes mistakes, some will gain what others lose ; why can ’ t we be left alone to play this zero - sum game of ours? ” accepting this argument was a critical mistake. the regulators did not, in fact, have either the right incentives or the ability to acquire the necessary information, for two reasons. first, the big financial players are global