If these risks are present, then we should face up to the issue with tougher standards and enhanced supervisory oversight rather than leave the issue unaddressed. This has to be a superior approach relative to pretending these firms could not be TBTF and the problem doesn’t exist. Policy measures to reduce the adverse systemic consequences from failure Because no plausible level of capital and liquidity standards will be sufficient to reduce the probability of failure to zero, it also makes sense to work on the other major margin – to reduce the cost of the failure of a large, complex financial firm. We can do this by making changes so that such failures are less likely to impair the functioning of the broader financial system. In this area, although many initiatives are in train, I would conclude that we are still very far from where we need to be. One simple but meaningful step that already has been enacted is to put a brake on the ability of the largest and most complex firms to become even larger and more complex. To this end, the Dodd-Frank Act adds “the risk to stability of the U.S. banking or financial system” as an additional factor to be considered in evaluating a proposed merger or acquisition under the Bank Merger Act and the Bank Holding Company Act. As Governor Daniel Tarullo discussed in a recent speech, there is not a hard and fast rule to be applied here.
Ultimately, if risks materialise, could one of the options be a further extension of the programme into 2019? As our President, Mario Draghi, said last week, the asset purchase programme is now an integral part of our “toolbox". It is definitely an option, but, last week, we announced our anticipation of the end of net asset purchases, which reflects our confidence that inflation is on course to reach levels below, but close to, 2% over the medium term. Well, are you being vigilant? We are alert to the tail risks that may, for example, stem from protectionism and, potentially, from an associated sharp fall in confidence. Might another option be to increase the monthly pace of purchases for the last three months of the year, to purchase more than € billion, if the situation deteriorates? The asset purchase programme remains an integral part of our “toolbox". This being said, our monetary policy decisions altogether maintain the current ample degree of monetary accommodation that is still needed for inflation to converge towards our aim. This includes, first, our enhanced forward guidance on interest rates, which we expect will remain at their present levels at least through the summer of 2019 and in any case for as long as necessary, and, second, our very large stock of assets for which we intend to reinvest the principal payments from maturing securities. The reinvestment policy plays a very important role, as the amounts are sizeable. How long will the reinvestments last?