Robert Ophèle: Diversity and harmonisation of deposit insurance Closing speech by Mr Robert Ophèle, Deputy Governor of the Bank of France, at the International Association of Deposit Insurers (IADI) International ERC Conference, Paris, 26 May 2016. *  *  *  I wish to thank the IADI and the FGDR for inviting me to deliver this closing speech. Bruno Bezard opened the conference for the French Treasury, and a central banker will close it. This is a perfect arrangement. Deposit insurance or deposit guaranty is a fascinating tool. History and geography have demonstrated the variety of schemes and how they are a powerful force for the better, or perhaps for the worse. I can’t indeed refrain from quoting the American Bankers Association, in 1933, i.e. more than 100 years after the introduction in the US of the first deposit insurance scheme, by the State of New York in 1829: “these historical experiences show that the guaranty plan is inherently fallacious and based on erroneous premises and assumptions. It has proved to be one of those plausible, but deceptive, human plans that in actual application only serve to render worse the very evils they seek to cure.” Today 113 Deposit Insurance Funds are in place, but I should stress that the jury is still out as to their effectiveness. Indeed, recent history shows how tricky deposit insurance can be. Just remember a few years ago, when schemes avoiding moral hazard by not providing a 100 percent coverage of even the smallest deposits were favoured.
This means: sustained momentum relative to trend; domestic cost growth resuming a path consistent with headline inflation at 2%; and core inflation measures moving notably towards the target. It is clear to me that, since last summer, progress has been insufficient along these dimensions to warrant a tightening of monetary policy. The world is weaker and UK growth has slowed. Due to the oil price collapse, inflation has fallen further and will likely remain very low for longer. This may mean modestly weaker cost growth through this year, with the likely path for inflation, both headline and core, softer as a result. In short, recent developments suggest that the firming in inflationary pressure we had expected will take longer to materialise. 23  In economic parlance, they are elements of a reaction function. One can think of a reaction function as akin to guide or policy rule relating the policy instrument to a set of macroeconomic variables. These are usually evaluated with respect to an “objective function” containing the policymaker’s target variables. For example, a flexible inflation targeting regime would be consistent with an objective function containing the deviation of inflation from its target and the deviation of a measure or measures of real activity from their equilibrium levels, weighted according to the policymaker’s preferences for stabilising one at the cost of another.