The effects can come from a series of deregulations that affect different stages of price formation for a variety of goods and services. So even if it were feasible, I believe that working with a narrow price index would have more drawbacks than advantages. We must accept instead that all economic activities pose difficulties that stem from the impossibility of predicting the future exactly. When it comes to evaluating monetary policy, it is better to accept certain deviations from a relevant target than to have a target than can only be fulfilled because it has been defined so narrowly as to be hardly relevant. This particular aspect is also highly important and valid in other situations to do with the evaluation of monetary policy. There needs to be a widespread awareness both of what monetary policy is actually capable of achieving and of the choices that continually have to be made. Otherwise it will be difficult to achieve a comprehensive evaluation. All this is, of course, a matter of learning. But sometimes there is too great temptation to score a cheap point in the public discussion by accusing the central bank of acting too late or ‘missing’ the target. The point I want to make on this topic is that an inflation targeting monetary policy normally functions satisfactorily even in situations that are characterised by price effects from deregulations. Monetary policy may not be capable of fully countering every change in the general price level, including more or less transitory effects on the rate of inflation.
But across the financial world, investors and regulators are asking themselves whether it also brought costs that are only now becoming clear.” The way oversight of the financial system is split between the FSA, the Treasury and the Bank of England is in doubt. Gordon Brown’s reform of a decade ago means that those responsible for monitoring the banking system are separate from those who make the decision to intervene.] In understanding the factors that impinge on this particular case about Northern Rock, one will learn that the roles and tasks faced by the supervisors and the regulators are enormous. Supervisors need to keep a step ahead of financial market developments and innovations. We must not be oblivious or ignorant to the fact that, despite all the strength of legal framework, regulatory and supervisory arrangements we can have, we always learn that banks still fail, even those too big to fail collapsed at their own demise – some due to reasons other than risks. In other words, the supervision of banks cannot provide full or complete guarantee against banking failures. However, supervision can assist the banks in managing their risks by taking appropriate measures and precautions. After all, banks are vulnerable to errors in human judgment and the fragile confidence of depositors. Therefore, regulation and supervision is not a substitute for good management. That is the lesson we have to learn from many bank  2  BIS Review 142/2007  failures even in countries with the best regulatory systems.