lorenzo bini smaghi : three questions on monetary policy easing lecture by mr lorenzo bini smaghi, member of the executive board of the european central bank, at the university of ancona, ancona, 6 march 2009. * 1. * * introduction 1 it is a pleasure to be at the university of ancona and to be able to deliver this lecture. thank you very much for the invitation. when preparing this lecture, i found myself thinking about the speech i gave in october 2006. at that time, central banks worldwide were raising interest rates, so i thought it would be useful to consider the key challenges that monetary policy faced in a tightening phase. i asked the following three questions : when to start tightening monetary policy? at what speed to tighten? and when to stop tightening? circumstances have changed. now, central banks worldwide are lowering interest rates. so we could ask the same questions, but just change one word : when to start easing monetary policy? at what speed? and when to stop easing? today i would like to share with you some thoughts on these three questions. in theory, the answers to the three questions should be simple. a loosening phase begins – and the interest rate should be cut – when downward risks to inflation prevail. the interest rate should be cut at a pace necessary to ensure price stability in the medium term. finally, the easing phase should end when upward risks to inflation become dominant again. in the euro area, the downward or upward risks to inflation refer to the ecb ’ s definition of price stability, which is less than, but close to, 2 %. this may sound easy, in theory. in practice, how do you decide if upward or downward risks to inflation predominate? there is no silver bullet, no single indicator and no single model that can do the job for monetary policy - makers. any modern central bank looks at a variety of indicators, at a variety of models, and uses careful judgement to reach a firm view concerning risks to price stability. at the ecb, as you know, we find it useful to organise the analysis of risks to price stability on the basis of two complementary perspectives. first, in what we call the “ economic analysis ”, we assess the short to medium - term determinants of price developments. the focus is on real activity, price indexes and financial conditions. the second perspective, the “ monetary analysis ”, focuses on the medium to long run. here

daniel k tarullo : regulatory restructuring testimony by mr daniel k tarullo, member of the board of governors of the us federal reserve system, before the committee on banking, housing, and urban affairs, us senate, washington dc, 23 july 2009. the original speech, which contains various links to the documents mentioned, can be found on the us federal reserve system ’ s website. * * * chairman dodd, ranking member shelby, and other members of the committee, i appreciate the opportunity to discuss how to improve the u. s. financial regulatory system so as to contain systemic risk and to address the related problem of too - big - to - fail financial institutions. experience over the past two years clearly demonstrates that the united states needs a comprehensive strategy to help prevent financial crises and to mitigate the effects of crises that may occur. the roots of this crisis lie in part in the fact that regulatory powers and capacities lagged the increasingly tight integration of conventional lending activities with the issuance, trading, and financing of securities. this crisis did not begin with depositor runs on banks, but with investor runs on firms that financed their holdings of securities in the wholesale money markets. an effective agenda for containing systemic risk thus requires adjustments by all our financial regulatory agencies under existing authorities. it also invites action by the congress to fill existing gaps in regulation, remove impediments to consolidated oversight of complex institutions, and provide the instruments necessary to cope with serious financial problems that do arise. in keeping with the committee's interest today in a systemic risk agenda, i will identify some of the key administrative and legislative elements that should be a part of that agenda. ensuring that all systemically important financial institutions are subject to effective consolidated supervision is a critical first step. second, a more macroprudential outlook – that is, one that takes into account the safety and soundness of the financial system as a whole, as well as individual institutions – needs to be incorporated into the supervision and regulation of these firms and financial institutions more generally. third, better and more formal mechanisms should be established to help identify, monitor, and address potential or emerging systemic risks across the financial system as a whole, including gaps in regulatory or supervisory coverage that could present systemic risks. a council with broad representation across agencies and departments concerned with financial supervision and regulation is one approach to this goal. fourth, a new resolution process for systemically important nonbank financial firms should be created that would allow the government to wind down a troubled