carlos da silva costa : opening remarks – " conference on financial stability " opening remarks by mr carlos da silva costa, governor of the bank of portugal, at the bank of portugal conference on financial stability, lisbon, 17 october 2017. * * * opening remarks by governor carlos da silva costa good morning ladies and gentlemen, it is a great pleasure to be here today to open banco de portugal ’ s 2017 conference on financial stability. on behalf of banco de portugal and the organising team, a very warm welcome to you all! 10 years past its beginning, academics and policymakers are still struggling to build a consensus on the policy implications of the financial crisis. it is undisputable that the financial system in most advanced countries is now sounder than at the onset of the financial crisis in 2007 : funding of the core of the financial system ( banks ) is more stable, an adjustment process leading to more sustainable levels of leverage took place, and banks are significantly more capitalized. nevertheless, the financial system is not immune to risks, and the existing policy instruments are unable to fully address the persisting legacy of the crisis. moreover, in the aftermath of the crisis, to reduce the risk of moral hazard and protect the taxpayer from shouldering private sector losses, there was a strong impetus against involving public money in providing a safety net to the financial system. bail - in principles in resolving banks prevailed, as well as a general aversion to bail out provisions. while this should be the norm, flexibility should be preserved to address emergency situations. by limiting policy options on the usage of public funds, regulators may have ended up exacerbating risks in the event of a systemic crisis. jeopardizing financial stability will result in output losses and damaging consequences to the overall economy. as investors rationally act to protect themselves against the possibility of haircuts to their claims on weaker institutions, the existing framework may actually accelerate runs and create a heightened vulnerability to a future systemic financial crisis. the incomplete set up of the banking union in europe with the full implementation of the resolution regime is a dangerous combination. last week ’ s proposal by the european commission risks prolonging this problem. when seen in the context of the much smaller room for manoeuvre of monetary and fiscal policy tools, this threatens to leave us less prepared to deal with future crises. therefore, despite the reforms in financial regulation, and the upgrade in analytical and monitoring instruments, we should not convince ourselves that our ability to detect and

also argued that “ [ t ] his requires that the national supervisors and parliaments should receive the necessary information to understand the risks national depositors are exposed to from these branches and the possible impacts on the financing of their economies. this may require developing specific reporting instruments and processes for the local authorities to continue to be able to appropriately supervise local activities and thus contribute to supervisory decisions taken at the ssm level that may impact their jurisdiction. ”, eurofi ( 2019 ), programme of the eurofi high level seminar in bucharest, 3 - 5 april. viii as evidenced by the high - level working group chair report on the strengthening of the banking union, including edis ( op. cit. ) : “ broad agreement exists on the need for a harmonisation of necessary parts of bank insolvency law, including with regard to cross - border groups and the ranking of creditors, while the toolbox for resolution might need to be expanded. ” ix this report is expected to feed into the review of the single resolution mechanism, european commission ( 2019 ), “ report from the commission to the european parliament and the council on the application and review of directive 2014 / 59 / eu ( bank recovery and resolution directive ) and regulation 806 / 2014 ( single resolution mechanism regulation ) ”, available at http : / / ec. europa. eu / transparency / regdoc / rep / 1 / 2019 / en / com - 2019 - 213 - f1 - en - main - part - 1. pdf, and european parliament ( 2019 ), briefing for the purposes of the public hearing with elke konig, chair of the single resolution board on 2 april 2019. the european parliament econ committee has also commissioned an external study on “ lessons from the united states for banking resolution in the banking union ” to be published in spring 2019. x state aid sa. 50640 ( 2018 / n ) – italy – liquidation scheme for small banks, available at http : / / ec. europa. eu / competition / state _ aid / cases / 274069 / 274069 _ 1989761 _ 107 _ 2. pdf. xi judgment in joined cases t - 98 / 16, italy v commission, t - 196 / 16, banca popolare di bari scpa v commission, and t - 198 / 16 fondo interbancario di tutela dei depositi v commission. xii the dgs directive also recognises that dgs funds may be used