But the price for receiving protection is that banks must be subject to some regulation and supervision. Having acknowledged this, I am not a fan of extended bank regulation but rather regulation of a limited and transparent type, intended to protect society against major incidents and costs but allowing banks to conduct and develop their business as flexibly as possible. Clearly, bank regulation must aim at promoting efficiency and stability. Only efficient banks will remain stable in the long run. The old-fashioned type of regulation forcing banks to do business on other than market-oriented terms must be abolished. If the government wants to subsidize certain activities, such as banking for people in remote geographical locations, mortgage lending on favourable terms, or lending to important borrowers or projects, the costs for this should be transparent and show up as a part of the fiscal budget. Such activities should not be conducted by directives from the government to the banks. Another type of regulation which is becoming increasingly obsolete and inefficient is when the authorities try to micro-manage the behaviour of the banks by setting upper or lower limits on fees, deposit rates, lending rates, and credit expansion. The situation in the economy changes so rapidly that the authorities will never be able to catch up and their actions could then be more harmful than helpful. The type of regulation I would like to promote is flexible.
SPEECH  Quantitative tightening: rationale and market impact Speech by Isabel Schnabel, Member of the Executive Board of the ECB, at the Money Market Contact Group meeting Frankfurt am Main, 2 March 2023 Eight years ago, we launched the asset purchase programme (APP). It was the first time the ECB employed quantitative easing (QE) to help secure price stability when the space for further policy rate cuts was becoming constrained by the effective lower bound. By now, there is a wealth of evidence suggesting that the APP was successful in lowering long-term interest rates, stimulating economic activity and raising inflation at times when price pressures were unusually weak. [1] As risks to medium-term price stability had increased sharply, we decided in June 2022 to end net asset purchases under the APP as of July. In December, we announced that the APP portfolio would decline at a measured and predictable pace as of March 2023. This became effective yesterday when we started limiting reinvestments of maturing securities. Until the end of June 2023, the APP portfolio will decline by € billion per month on average. [2] For our corporate bond portfolio, the remaining reinvestments will be tilted more strongly towards issuers with a better climate performance, in line with the goals of the Paris Agreement and without prejudice to our primary mandate. [3] In the second quarter of this year, the Governing Council will reassess the pace of APP portfolio reduction. I will start my remarks today by presenting the rationale for conducting quantitative tightening (QT).