gertrude tumpel - gugerell : what is the role of central banks for banking supervision? introductory remarks by ms gertrude tumpel - gugerell, member of the executive board of the european central bank, at the panel discussion at the zeit konferenz “ finanzplatz : menschen und entscheidungen ”, frankfurt am main, 8 september 2008. * * * the ecb has already expressed its position on the possible role of central bank in financial supervision in 2001. this was triggered in the context in which some countries were in the process of transferring the supervisory function from the central bank to independent authorities. the main position at that time, which remains valid today, is that there is no optimal arrangement for the organisation of supervision at the national level. all organisational models – sectoral supervision, supervision by objectives, supervision in a single authority – can in principle work well or fail depending on circumstances. however, regardless of the model, it is important that there exists a very close and smooth interplay between the central banking and the supervisory function. does the experience of the turmoil bring new elements in this domain? this is certainly the case. in general the turmoil has clearly confirmed the importance of a strong interaction between central banks and banking supervisors as also confirmed by the specific recommendation of the financial stability forum in this field. as a new element the turmoil has somewhat contributed to specifying the relevant areas in which this interplay should be reinforced. first, in the area of monitoring and assessing risks to financial stability, central banks can benefit from extended access to supervisory information and intelligence to better understand risks and vulnerabilities for the financial system as a whole. at the same, there is clearly the issue, of how to translate the outcome of the financial stability assessment into supervisory action. in principle one cannot but agree that there should be a way through which, if the central bank identifies serious risks to financial stability, the competent supervisor should be able to act. therefore, communication needs to go both ways : from the central bank to supervisors and vice versa within the respective legal framework. second, in the area of liquidity, there is clearly room for a closer interplay between the two authorities. central banks would benefit from enhanced access to supervisory information and intelligence for its role of maintaining stable money markets. to that end for instance access to information on banks ’ liquidity contingency planning funds would be useful. at the same time, supervisors would benefit

, einstein built his theory of relativity pondering the somewhat wacky question of what someone travelling in a train at the speed of light would experience. so nothing should be excluded but everything should be subject to debate and constant testing. no one should be allowed to offer unquestioned pronouncements. without this competition for ideas, we have stagnation. this then leads to a second essential : protection, not of specific ideas and traditions, but the right to question and challenge, the right to behave differently so long as it does not hurt others seriously. in this protection lies societal self - interest, for it is by encouraging the challenge of innovative rebels that society develops, that it gets the ideas that propel solow ’ s total factor productivity growth. fortunately, india has always protected debate and the right to have different views. some have even embedded these views in permanent structures. raja raja chola, in building the magnificent brihadeeswara shaivite temple at thanjavur, also incorporated sculptures of vishnu as well as the meditating buddha thus admitting to alternative viewpoints. when shahenshah jalaluddin muhammad akbar invited scholars of all manner of persuasion to debate the eternal verities at his court, he was only following bis central bankers ’ speeches older traditions of our hindu and buddhist kings, who encouraged and protected the spirit of enquiry. what then of group sentiment? should ideas or behaviour that hurt a particular intellectual position or group not be banned? possibly, but a quick resort to bans will chill all debate as everyone will be anguished by ideas they dislike. it is far better to improve the environment for ideas through tolerance and mutual respect. let me explain. actions that physically harm anyone, or show verbal contempt for a particular group so that they damage the group ’ s participation in the marketplace for ideas, should certainly not be allowed. for example, sexual harassment, whether physical or verbal, has no place in society. at the same time, groups should not be looking for slights any and everywhere, so that too much is seen as offensive ; the theory of confirmation bias in psychology suggests that once one starts looking for insults, one can find them everywhere, even in the most innocuous statements. indeed, if what you do offends me but does not harm me otherwise, there should be a very high bar for prohibiting your act. after all, any ban, and certainly any vigilante acts to enforce it, may off