Public authorities – at least in Europe – have tended to come to the aid of weak institutions, thus confirming the existence of an implicit guarantee for banks’ liabilities. This guarantee distorts the incentive system for the managers of banks and for their creditors, generating considerable costs for the public finances of the countries concerned. A key factor in encouraging the suitable risk perception of each liability instrument, and thus in minimising the cost for taxpayers, is bail-ins. These establish a clear order for the incurring of losses by shareholders and creditors, and provision is made for this arrangement to be activated prior to any injection of public funds. In Europe, given the political agreement reached on the Recovery and Resolution Directive, a set of common rules will be adopted in the near future establishing a clear and homogeneous order of seniority of liabilities in the event of bank resolution, and it will ensure the administrative power to impose losses on the holders of each instrument. That will notably minimise the cost to taxpayers of bank bail-outs. But common rules are not enough. The only way to ensure the possible homogeneous application of these rules is through the creation of a common resolution authority for all countries. BIS central bankers’ speeches  3  Similarly, it is important to have a common resolution fund in place which ensures, under similar conditions, that there is the necessary financial support for those institutions which might need it, irrespective of the budgetary situation of the State concerned.
Bruno Gehrig: Monetary policy in a changing world  Speech by Prof Dr Bruno Gehrig, Member of the Governing Board of the Swiss National Bank at the 3rd Conference of the Swiss Society for Financial Market Research (Schweizerische Gesellschaft für Finanzmarktforschung, SGF), held in Zurich on 7 April 2000. *  *  *  The title of my speech may sound somewhat ambitious. It signals all-encompassing breadth and profound depth. These are demands that I will hardly be able to meet. What follows are a few reflections on selected aspects of monetary policy by a practising economist. I should like to begin with a brief historical review leading to the 1990s, which have become known - and justly so - as the decade of successful disinflation. Then I will turn to the changes in monetary policy concepts. Following these rather retrospective remarks, I should like to deal with topics of broad general interest in today’s discussion - under the headings “independence”, “new economy” and “asset prices”. 1. A brief historical review  In a historical dimension, central banks are comparatively young institutions. While payment instruments can actually be traced back to prehistoric eras, central banks have emerged only very gradually over the last 300 years.1 When one considers that the Bank of England was founded when Johann Sebastian Bach was nine years old, one might even regard central banks as somewhat “baroque” institutions. Indeed, the original missions of central banks must strike us as highly bizarre. “A money-raising machine”!