Only recently, the Fed and the Bank of Japan have announced a numerical inflation goal. The second element: central banks should be independent on legal and operational grounds. Indeed, the independence of central banks is enshrined into primary law in a number of advanced and emerging countries and has been key for a stability oriented monetary policy. For crisis management, the so-called Jackson Hole consensus 2 of the 1990s and early 2000s foresaw only a limited role for central banks. Following the logic of the consensus, monetary policy should react to financial imbalances only to the extent that they affect the inflation forecast. Yet, as asset price build-ups are often accompanied by relatively contained inflation rates, 3 “ex-ante” monetary policy reactions were considered difficult. Effectively the consensus implied that central banks would only intervene “ex-post” to counter potential deflationary risks and risks to financial stability. The dot-com bubble of the beginning of the century was an illustration of such strategy. The ECB with a special emphasis on monetary developments The ECB’s standpoint differed from the Jackson Hole consensus. We have always emphasised that focusing on money and credit developments provides for a medium- to long-term perspective. It was believed that the monetary pillar would release warning signals and hedging against the building up of financial imbalances. 4 Indeed, as of 2005, on the basis of its monetary pillar, the ECB has repeatedly warned on the observed strong credit growth and the accompanied under-pricing of risk.
In my view, a future European financial architecture should include a fully-fledged financial market union which rests on three pillars. •  First, a European banking supervisory authority with sufficient instruments and competencies to implement on a level playing field the regulatory framework in the euro area. This authority should in particular have the competence to order the closure and the resolution of non-viable institutions. The resolution of non-viable banks should no longer be a rare exception in Europe. Here we can learn a lesson from the US where 464 banks were closed since 2008. 8  •  Second, a resolution authority and a coherent regulatory framework for the resolution of systemically important banks. The costs of a resolution shall ultimately be borne by a fund. This fund needs to be financed by the financial sector itself to unwind systemically relevant financial institutions without relying on public finances and ultimately taxpayers’ money. •  Third, deposit insurance should be organised or at least further harmonised at the European level. While it is clear that moving towards a financial market union cannot be achieved overnight, it is important to stress that we need all of the just mentioned three elements. The banking supervision can only work efficiently if it has access to the relevant information, for example on the deposits. It can only act effectively if it has the adequate instruments in its toolbox, such as the closure of a non-viable bank.