Alexandre Lamfalussy: 1929–2015

Alexandre Lamfalussy, renowned as one of the founding fathers of the euro and a champion of safer financial systems, has died aged 86.

He is perhaps best known as the first president of the European Monetary Institute (EMI) – the precursor to the European Central Bank (ECB) – where he helped lay the foundation for monetary union in Europe.

His accomplishments stretch far beyond the borders of the eurozone, however. During his 17 years at the Bank for International Settlements (BIS) he shaped the institution's approach to financial stability.

Not only was he an early champion for macro-prudential policy, but some of his most important work in Basel led to the creation of standards for cross-border and multi-currency netting systems known as the 'Lamfalussy principles'.

He is remembered as a hard-working, intelligent man, who was both technically gifted and a pleasure to work with. He was ideally suited to the community he made his own.

They really don't make people like him anymore

"A central banker to his fingertips," is how Michael Foot, global vice-chairman of Promontory Financial Group, describes him; while Charles Goodhart, emeritus professor at the London School of Economics, says he was "the perfect central bank civil servant".

Financial stability and the BIS

Baron Alexandre Lamfalussy was born April 26, 1929, in Kapuvár, Hungary. He moved to Belgium in 1949, where he studied at the Catholic University of Louvain.

He remained in academia until 1955, when he joined Banque de Bruxelles – a commercial bank in Belgium – eventually rising to chair its executive board.

Ivo Maes, a senior adviser at the National Bank of Belgium (NBB) and co-author of Alexandre Lamfalussy: The Wise Man of the Euro, says it was here Lamfalussy began to focus on monetary and financial issues.

In particular, he expanded his interest in financial markets. In a working paper published by the NBB in 2011, Maes notes Lamfalussy was "involved in the creation of certain mutual funds and played a role in international investment banking" during his time at the bank.

He joined the BIS in 1976 as economic adviser and head of the monetary and economic department, before working his way up the institution. After serving as deputy for four years, he was appointed general manager in May 1985, a position he held until December 1993.

In a statement released May 11, Jaime Caruana, the current general manager, says Lamfalussy was "greatly concerned" with financial stability issues and "one of the earliest advocates of a macro-prudential approach".

Caruana also acknowledged his predecessor's personal qualities. Lamfalussy, he says, "combined a brilliant intellect with a soft-spoken and courteous manner" and that he "will be deeply missed by all who knew him".

In 1989, Lamfalussy began chairing the Committee on Interbank Netting Schemes. A report the committee published the next year came to be known as one of his defining achievements.

"Perhaps one of the most impactful but lesser-known of Alexandre Lamfalussy's innumerable accomplishments was his leadership in strengthening the ‘plumbing' of the global financial system," says Lawrence Sweet, senior vice-president and head of payments policy at the Federal Reserve Bank of New York.

The committee, which brought together members from the G10 central banks, developed the first set of internationally agreed standards for cross-border and multi-currency netting systems, along with the first set of principles for co-operation among central banks in overseeing them.

"Known as the ‘Lamfalussy standards' and the ‘Lamfalussy principles', they served as guideposts for central banks and the industry throughout the 1990s as emerging payment, clearing and settlement arrangements tied the world's financial systems closer together, and as financial stability became increasingly dependent upon their safety and efficiency," Sweet says.

"Lamfalussy's path-breaking leadership supplied the blueprint and laid the foundation for building a sound global financial system."

Many of those who knew Lamfalussy highlighted his leadership ability. Goodhart describes him as "a very softly spoken man, but one who knew his own mind", adding he "would try and persuade people to his point of view through argument, he never shouted at people".

This sentiment is echoed by Foot. "A cultured mild-mannered gentleman, a central banker to his fingertips, a man with global international vision, and personally always willing to give his time to listen to and respect people who disagreed with him," he says. "They really don't make people like him anymore."

Monetary union in Europe

Lamfalussy became president of the European Monetary Institute in January 1994, a role that led Jean-Claude Trichet to describe him as "the acting founding father of the ECB" in a speech in Brussels on February 12, 2014.

"His passion for Europe and for European unity made him a militant of European reunification," Trichet, the ECB president from 2003 to 2011, said at the time.

Trichet reckoned Lamfalussy would have experienced "extraordinary satisfaction" at chairing the EMI after the fall of the Iron Curtain – noting he must have experienced "immense sadness" to leave his own home country to escape the "iron rule of Communism".

The EMI was tasked with preparing for the establishment of the European System of Central Banks (ESCB) and was ultimately superseded by the ECB on June 1, 1998.

The ECB released a statement on May 11 honouring Lamfalussy's "commitment and contribution to Europe", which saw him push forward the process of both financial and monetary integration.

This began during his time at the BIS, when he served as a member of the ‘Delors Committee', which created the blueprint for Economic and Monetary Union (EMU) in Europe and shaped the Maastricht Treaty, and continued into his tenure at the EMI.

His contributions to Europe went beyond monetary policy. "Many aspects of what is known today as banking union," the ECB says, "are rooted in Alexandre Lamfalussy's initial analysis".

Delivering the second Pierre Werner Lecture in Luxembourg on October 26, 2004, Lamfalussy made the case for centralised supervision in the eurozone a full decade before it became a reality.

He argued in favour of "exploring the desirability and the feasibility of entrusting the ECB with an operational responsibility in the supervision" of a "limited number of very large banks".

This, he said, would help provide the ECB with the information it needed to conduct macro-prudential policy in the eurozone, while strengthening co-operation between supervisory bodies.

"It would not need to imply by necessity the overhaul of the banking supervisory arrangements at the national level: the ECB would have to share its responsibility with the national authorities – be they the NCBs or other agencies," he said, presciently.

A wise man and 'delightful person'

Lamfalussy retained his influence in Europe after leaving the EMI. He chaired the Committee of Wise Men which, in 2001, published a new approach to financial services regulation, which came to be known as the ‘Lamfalussy process'.

Under the four-level process, the European Commission proposes framework legislation, which is then adopted under the "co-decision procedure" involving the European Council and Parliament.

The second level sees the Commission solicit advice on how to implement the agreed measures, before they are adopted. Level three deals with the need for consistent implementation and level four the question of enforcement.

Lamfalussy achieved a great deal in a great many areas of policy-making. In doing so he worked with a host of top central bankers and supervisors whose memories are perhaps best summarised by Goodhart, who comments he was "a delightful person to be with".