Tuesday, January 3, 2012

BIS - TPS - Mr. Padoa-Schioppa reviews his experience in central banking over the last thirty years

Mr. Padoa-Schioppa reviews his experience in central banking over the last thirty years Text of the remarks by Dott. Tommaso Padoa-Schioppa, a Deputy Director General of the Bank of Italy, at the Governors' Dinner held in Basle on 7/4/97.

"...1. To have been invited to attend and address the Governor’s dinner is a very great honour for me as I step down from the chair of the Basle Committee and leave the community of central bankers.

When Governor de Larosière proposed my name to succeed Gerry Corrigan, he admitted, so I have been told, that my curriculum vitae was not that of a full-time bank supervisor. Presenting this handicap as an advantage, he suggested that my previous involvement in a variety of central banking activities could be useful because of the growing interaction between monetary policy, payment systems and banking stability. You were generous enough to accept that view. That was an act of confidence. As words like confidence, trust and credibility are the very essence of the vocabulary of banking, I am deeply grateful for the confidence you granted me four years ago.

2. In view of my mixed background, I shall focus on central banking, rather than just banking supervision, and try to sum up what I have learned and what I have witnessed over the last thirty odd years: first about the tasks of central banking and then about the context in which such tasks are performed..."

"...11. Basle, the BIS, the meetings of the community of central bankers, from the Governors down to junior officials, are where our profession has strived, largely successfully, to maintain the upper hand over the reality that calls for its public function. The task is being performed notwithstanding the wide diversity of national laws, traditions, operational practices and institutional constraints.

I am a convinced institutionalist, because I believe that without a “Rule of Law” liberty and peace - the key prerequisites for economic activity - cannot survive for long. And my basic training, as well as much of my professional experience, have been in the European arena, which is a highly institutionalized cooperative system.

In international monetary cooperation Basle stands at the “soft” end of the spectrum - no legal basis, no written terms of reference, no extensive minutes. Mostly personal contacts and work based on the key words of banking and central banking: confidence, trust, credibility, confidentiality.

12. Although I started to attend BIS meetings well before this tower was constructed (in the old hotel building of the Centralbahnstrasse), it was only when you called me to the Basle Committee that I fully realized how strong this soft approach could be. Lawyers say that the Basle Committee “does not legally exist”. When I was appointed to its chair, my secretary had to take my word for it because she could not find any written evidence of the decision. Yet the Committee rules, once endorsed by you, are adopted by the markets, followed by national legislators and spread to all countries worldwide.

When considering the working methods of the Basle Committee, I have often thought that international cooperation among central banks can be compared to Italo Calvino’s “Nonexistent Knight”. When Charlemagne, reviewing his paladins before the battle against the Infidels, reached the last knight, Agilulf, clad entirely in white armour, the cavalier refused to show his face to the emperor. The explanation he gave was simple: “Sire, because I do not exist”.

Charlemagne insisted and when the knight finally raised his visor, the helmet was empty. “Well, well! Who’d have thought it!” exclaimed Charlemagne. “And how do you do your job, then, if you don’t exist?”. “By will power and faith in our holy cause!” said Agilulf. He fought with valour and bravery. His special status assisted him in the accomplishment of his duty and indeed he proved to be one of the best paladins."

BIS Review 41/1997

Source: http://www.bis.org/review/r970418b.pdf?frames=0

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