At the same time, it must develop this policy framework, for which no template exists and for which the analytical background captures only parts of the tasks. In the medium term, the ESRB and the macroprudential authorities of the 27 EU countries will need operational policy frameworks with specific instruments. The ESRB is ready to support – at a technical level – the work that European institutions have started to design the implementation of countercyclical capital buffers. Other macroprudential instruments are also desirable. Work on these issues has been initiated. For example, new rules on margins and collateral should counteract the fluctuations of the cycle. The specific capital requirements for risk-weighted assets might also be adjusted over the cycle. When these macroprudential instruments are established, possibly around the middle of this decade, the authorities will finally have tools to mitigate the pro-cyclical behaviour of financial  4  BIS central bankers’ speeches  players. Authorities will set part of the regulatory requirements not against the solvency or liquidity situations of single institutions, but taking a view of the macroprudential cycle. Other instruments will be needed to address interconnectedness, including the most complex and innovative elements of market functioning. One specific focus of authorities is to ensure that efficient and secure central counterparties are created to reduce risks in OTC markets. Concentration risks produced by increasingly large financial institutions in trading and posttrading will also need to be addressed.

This is why the ESAs and national supervisors together with the central banks are members of the ESRB and why the ESRB and the ESAs form the European System of Financial Supervisors. The ESRB’s main tasks are threefold: to identify and prioritise systemic risks; to issue early warnings when significant systemic risks emerge; and to issue policy recommendations for remedial action in response to the risks it identifies. The ESRB will not focus on individual institutions, individual countries or individual macroeconomic issues – it will take a strong horizontal focus, across countries, across sectors and across the boundaries between the financial sphere and the real economy. Interlinkages and spillovers should be key terms in its analysis. To achieve these tasks, the ESRB is drawing on information from many sources, including strong analytical input from its members; intelligence gathered from financial system participants; and the data necessary to understand the nature of interlinkages that define the financial system. ESRB analysis must be broad-based covering potentially any aspect of the EU’s financial system – markets, institutions and infrastructure. The ESRB is being established at a time when the concerns of markets and policy-makers about short-term vulnerabilities seem to prevail over perceptions of medium- and longer-term risks. This confronts the ESRB, as well as other macroprudential bodies around the world, with specific challenges. The ESRB needs to consider what activities to initiate, well before a fully-fledged macroprudential policy framework is developed in the medium term.