John C Williams: The right tools for our time Remarks by Mr John C Williams, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the International Economic Symposium co-hosted by the Deutsche Bundesbank and NABE, Eltville, 10 May 2022. ***  As prepared for delivery Good afternoon. I'm so pleased to be here with you today. We've waited a long time to gather in person. And I think we can all agree that meeting in this charming location was worth the wait. For most visitors, Eltville is renowned for its wine and roses. But for economists, it's a place to convene for weighty discussions on monetary policy. Given the events happening around the world today, there is much to discuss. We are meeting at a time of significant economic challenges and uncertainties. Inflation has reached levels not seen in decades, both in the United States and in many other countries. And recent events-including the war in Ukraine, lockdowns in China, and other supply disruptions related to the ongoing Covid-19 pandemic-are exacerbating near-term inflationary pressures and uncertainty about the global economic outlook. The challenge for monetary policy today is clear: to bring inflation down while maintaining a strong economy. This, of course, is at the heart of the Federal Reserve's dual mandate of price stability and maximum employment. Although the task is difficult, it is not insurmountable. We have the tools to return balance to the economy and restore price stability, and we are committed to using them.
The case of the Italian banks has illustrated just how complex it is to combine the resolution regime laid down in the Bank Recovery and Resolution Directive (BRRD) with the State aid framework for orderly liquidation. In addition, confidence in the Single Resolution Fund (SRF) and its capacity to intervene has to be bolstered. The setting-up of a common backstop, as mentioned in the European Commission’s communication of 11 October, is a promising avenue, which could take the form of a credit line granted by the ESM. Furthermore, the issue of the liquidity of the newly resolved entities – mainly the “good banks” – is not sufficiently clearly addressed: liquidity support by public sources beyond what can legitimately be expected from the Eurosystem should be clarified. Second, consistency in the legal framework and requirements: faced with the accumulation of new and “separate” requirements, we need to adopt a holistic and consistent approach in order to avoid a prudential overload. In particular, the TLAC requirement resulting from the new international framework requires a consistent adaptation of the European minimum requirement for own funds and eligible liabilities (MREL). In the same vein, the consequences of an internationally-agreed Basel III package – if and when it comes – should be carefully taken into account, as it would lead to increased risk-weighted assets, which will in turn impact the MREL.