Today, centrally monitored, stringent liquidity and capital standards for banks are our first line of defense against morally hazardous behavior deriving from resilience-enhancing policies such as lending of last resort and deposit insurance. Minimum standards serve to prevent unsound practices. In addition to binding regulation, two other elements are key.
Any artificial stimulation of the economy through a premature easing of monetary policy will lead to further tensions in the balance of payments and in the financial markets, and will lead to further upward pressure on inflation.