Also, as supervisors, we should move to develop models that envisage macroeconomic effects in the face of different ecological transition scenarios. The aim hereby is to become familiar with the potential impacts of climate change on specific economic sectors, industries and even firms, and on more aggregate variables, such as growth and inflation. Naturally, the implementation of many of these initiatives requires considerable international coordination. Hence the importance of our active participation in the NGFS, the supervisors’ and central bank network I mentioned earlier, set up in early 2018. In the short time since its creation, the NGFS has managed to bring together more than 30 central banks and supervisory authorities. The aims of this network include analysis of supervisory practices, of macroeconomic and financial risks, and the means for smoothing financing for the transition to a sustainable economy. Undeniably, the implementation of all these aspects with some degree of harmonisation will be a difficult task. But you will agree with me that we are all facing a fundamental challenge and that, as such, we must spare no effort. Allow me to refer briefly also to the role financial markets can play in this process of ecological transition. In capital markets we have seen some positive discrimination in the valuation of firms with a lower degree of exposure to climate change, albeit limitedly so. Logically, and as in the case of banks, the markets should act as a catalyst for change  4/5  towards certain sustainable activities, while discouraging investment in particularly polluting industries.
By the end of the 1930s, there were only six British banks left with reserve liability. In the US, a similar process was underway. Systemic bank failure during the Great Depression was taken as evidence of the inadequacy of extended liability in protecting depositors. As in the UK, making a call on shareholders was deemed likely to make a bad situation worse. It was quickly replaced with Federal deposit insurance in 1934. With reserve liability gone, so too did the rationale for shareholder vetting. So by the 1930s the governance and balance sheet structure of banks was unrecognisable from a century earlier. Ownership and control were amicably divorced. Ownership was vested in a widely dispersed set of shareholders, unvetted and anonymous. Their upside payoffs remained unlimited, but their downside risks were now capped by limited liability. The pool of reserve capital had largely evaporated. Later in the 20th century, these governance and balance sheet features spread across the financial system. During the 1990s, many of the larger global investment banks abandoned their private partnership status to become limited liability public companies. In the UK, a number of mutually-owned building societies followed suit and turned public. The rationale was familiar from a century earlier – the desire to break their balance sheet chains. By the end of the 20th century, joint stock banking was pre-eminent. What impact did these governance changes have on banks’ risk-taking incentives? Finance theory here is admirably clear.