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Board Member Tuomas Välimäki
Welcoming remarks at the pre-conference dinner
Bank of Finland and SUERF joint conference: “Post-crisis policy challenges and implications for macro modelling”
Helsinki, 19 September 2019

WELCOMING REMARKS AT THE PRE-CONFERENCE DINNER: BANK OF FINLAND AND SUERF JOINT CONFERENCE: “POST-CRISIS POLICY CHALLENGES AND IMPLICATIONS FOR MACRO MODELLING”, HELSINKI, 19 SEPTEMBER 2019

Dear Guests, Dear Colleagues,

It’s my pleasure to welcome you all to the Bank of Finland and to the joint conference with SUERF to be held tomorrow.

As many of you know, these Bank of Finland–SUERF conferences have become already quite a tradition. Tomorrow’s event will be the 9th in Helsinki since 2002.

This time the topic is “Post-crisis policy challenges and the implications for macro modelling”. I expect that many of you came here to learn and discuss about the rather concrete challenges we are facing in the policy modelling today.

It’s indeed very important sometimes to discuss “hands-on” issues of policy modelling, not least to us, central bankers. Last week we were facing hard questions in Frankfurt in the ECB’s Governing Council meeting: What is the accommodative impact of moving rates into more negative territory; What would be the effects to the real economy stemming from restarting large scale asset purchases; or how to formulate Forward Guidance to get the most of it, just to name a few.

With the rather unique mix of business areas – financial practitioners, academics, central bankers and financial regulators – SUERF offers an excellent forum for these discussions.

When preparing for tomorrow, it is interesting to look back at the topics from our previous joint conferences with SUERF.

In September 2002, we started our cooperation with the topic “Geography and Banking and Financial Markets”. I do not recall the exact focus of the presentations back then, but when I look at the geopolitics today or the developments in the UK, wherefrom I just returned last night, I cannot help but thinking that unfortunately the geographical dimension sounds probably even more topical now than seventeen years ago. Maybe it will reappear in the agenda of one of the forthcoming SUERF conferences.

The event we organized together in 2007, on the eve of the Subprime crisis, dealt with “Financial Markets, Innovation and Growth”. However, it was not so much about financial innovations as such, but more on their role in promoting real innovations and thereby growth.

The subsequent years taught us that perhaps the spotlight should have been shone at financial innovations already then. With the benefit of hindsight, such judgements are only too easy to make.

Then the Global Financial Crisis hit us with full force. It started with the housing markets in the US and also in many European countries.

The Bank of Finland and SUERF responded with the 2009 event “Housing Markets - a shelter in the storm or cause of the storm?”.

A special section in the Journal of Financial Stability can still be found, featuring some of the papers presented then, not to forget the SUERF’s own report on the conference either.

As we know, the shadow of the Crisis has been long, and the international regulatory response has been accordingly profound.

This was reflected in the subsequent event topics, “The Future of Risk Management” in 2011, “Banking after regulatory reforms: business as usual? (with a question mark)” in 2013, and “Liquidity and market efficiency - alive and well? (also with a question mark)” in 2015.

The event dealing with regulatory reforms in June 2013 witnessed the reunion of the members of the High-Level Expert Group, chaired by our former Governor Erkki Liikanen.

His expert group had published the structural reform proposal for European banks the previous year. Yet, the group’s proposals have so far not been implemented – but never say never.

At the moment, the regulatory pendulum, at least on the other side of the Atlantic, is already swinging back, as modifications to the “cousin” of Liikanen Report, the so called Volcker Rule, are under way. We should hope the pendulum is in the right position before risks in the financial system materialize again.

One important factor driving the perennial back and forth movement of regulation is the unintended consequences of financial regulation. This was at the core of our latest event in 2017 on “Shadow Banking: Financial Intermediation beyond Banks”. It was also the first time that SUERF’s flagship event, the Colloquium, was held in Helsinki.

So what should I say about your tomorrow’s conference theme in the light of these observations from the past events? For sure, many “Post-crisis policy challenges” still remain, and they have important “implications for macro modelling”. Macro modelling is understood to include also macroprudential modelling, as tomorrow’s program makes it clear.

I believe that one of the key lesson from the latest Crisis tells us that different policy areas are often connected in unexpected ways. If we do not see the interdependencies, and are unable to build a sufficiently unified picture of the economic and financial outlook, both at the micro and the macro level, we may miss risks big time.

I’m not sure if that was a particularly happy note to end with but, in any case, thank you very much for your attention, enjoy the evening, and let’s have a productive conference tomorrow!

 

Kudos to Dr Esa Jokivuolle, Head of Research of the Monetary Policy and Research Department for the groundwork for this speech.