In addition to these new facilities, the Fed made the judgment, after very careful consideration, that it was necessary to use its emergency powers to protect the financial system and the economy from a systemic crisis by committing to facilitate the merger between JPMorgan Chase and Bear Stearns. We did this with great reluctance, and only because it was the only feasible option available to avert default, and because we did not believe we had the ability to contain the damage that would have been caused by default. 6  BIS Review 74/2008  Our actions were guided by the same general principles that have governed Fed action in crises over the years. There was an acute risk to the stability of the system; we were not confident that the damage could be contained through other means; we acted only to help facilitate an orderly resolution, not to preserve the institution itself; and the management of the firm and the equity holders of the institution involved suffered very substantial consequences. Although we assumed some risk in this transaction, that risk is modest in comparison to the risk of very substantial damage to the financial system and the economy as a whole that would have accompanied default. Conclusion One of the central objectives in reforming our regulatory framework should be to mitigate the fragility of the system and to reduce the need for official intervention in the future.
Birgir Ísleifur Gunnarsson: Monetary issues in the European Union and Iceland Speech by Mr Birgir Ísleifur Gunnarsson, Chairman of the Board of Governors of the Central Bank of Iceland, at a seminar organised by the Iceland Trade Council, Euro Info office in Iceland and the EU Commission on the theme: Does the Euro affect Iceland?, Reykjavik, 31 October 2001. *  *  *  Ladies and Gentlemen: The evolution of European integration during the second half of the last century is remarkable in many ways. This process began soon after the end of World War II and represented an effort to forge stronger bonds between European nations and thereby, among other things, reduce the likelihood of further conflict on the continent. Although I shall not go into its history here, many notable milestones can be cited along the course that has been taken. One of the most notable was the formal establishment of the Economic and Monetary Union in the beginning of 1999. Now the abolition of the individual member nations’ separate currencies is in sight. As of next year they will be replaced by Euro notes and coin. Not only will prices of goods and services be calculated and stated in a single currency in the twelve EMU countries, but the same notes and coin will be used for business in them all.