yannis stournaras : banking resolution at ten - experiences and open issues opening address by mr yannis stournaras, governor of the bank of greece, at the bank of greece conference " banking resolution at ten : experiences and open issues ", athens, 15 may 2024. * * * distinguished speakers, ladies and gentlemen, the bank of greece welcomes you to this conference on the state of bank resolution regimes globally and in europe, the experience of their operation over the past decade and the current debates on necessary reforms. i am delighted to be here with you today, and to share with you some thoughts on this issue, which i consider to be of the utmost importance for the future of banking – and european banking, in particular. not by chance, this conference is taking place on the tenth anniversary of the adoption of the bank recovery and resolution directive under the greek presidency of the council of the european union in 2014, which for the first time established a harmonised pan - european framework for dealing with bank failures raising systemic concerns – a framework consistent with the new ideas and practices developed in the wake of the global financial crisis first at the national level, and soon after at the g20 level, culminating in the financial stability board's development of a globally applicable resolution standard for systemically important banks. specifically, while the basel iii reforms sought to enhance the resilience of the banking systems by significantly strengthening the prudential standards for credit institutions, the new resolution frameworks were intended to provide a coherent, sophisticated and internationally consistent response to the problem of bank failures, especially those that raise systemic concerns. banks play an important role in the economy, providing finance to households and businesses, while ensuring that depositors continue to have access to their funds. any disruption caused by the disorderly failure of a bank could have a severe impact on the economy, and even trigger an economic downturn, as seen during the global financial crisis. this does not mean, however, that we should operate a zero - failure regime, or that failed banks should be bailed out with taxpayers'money. bad banks should exit the market. and no bank should be allowed to pass on the costs of its own mismanagement to the taxpayer just because it is considered " too big to fail ". however, a bank's exit from the market should be orderly, should not disrupt the continuous provision of critical services, should not jeopardise the stability of the banking system as a whole and

federal reserve system. inside the fed this rate is known as the ioer rate, the “ interest on excess reserves ” rate. the ioer rate, currently set at 25 basis points, could be reduced to, say, 10 basis points or even to zero. on the margin, a reduction in the ioer rate would provide banks with an incentive to increase their lending to non - financial borrowers or to participants in short - term money markets, reducing short - term interest rates further and possibly leading to some expansion in money and credit aggregates. however, under current circumstances, the effect of reducing the ioer rate on financial conditions in isolation would likely be relatively small. the federal funds rate is currently averaging between 15 and 20 basis points and would almost certainly remain positive after the reduction in the ioer rate. cutting the ioer rate even to zero would be unlikely therefore to reduce the federal funds rate by more than 10 to 15 basis points. the effect on longer - term rates would probably be even less, although that effect would depend in part on the signal that market participants took from the action about the likely future course of policy. moreover, such an action could disrupt some key financial markets and institutions. importantly for the fed ’ s purposes, a further reduction in very shortterm interest rates could lead short - term money markets such as the federal funds market to become much less liquid, as near - zero returns might induce many participants and marketmakers to exit. in normal times the fed relies heavily on a well - functioning federal funds market to implement monetary policy, so we would want to be careful not to do permanent damage to that market. a rather different type of policy option, which has been proposed by a number of economists, would have the committee increase its medium - term inflation goals above levels consistent with price stability. i see no support for this option on the fomc. conceivably, such a step might make sense in a situation in which a prolonged period of deflation had greatly weakened the confidence of the public in the ability of the central bank to achieve price stability, so that drastic measures were required to shift expectations. also, in such a situation, higher inflation for a time, by compensating for the prior period of deflation, could in april 2010, the bank of canada removed the conditional commitment from its statement, and in june 2010, the bank raised its policy rate and announced a return to its normal operating framework for the overnight rate. help