Memorandums of Understandings or information-sharing protocols would then be used to ensure the free sharing of information between agencies. The analytical skills and tools required for macroprudential policy are likely to draw on those used for macroeconomic analysis and, to a lesser degree, microprudential analysis. But the  7  This argument is developed by Martin Cihák in a speech “Price stability, financial stability and central bank independence”, 38th Economics Conference of the Oesterreichische Nationalbank, 2010. A number of case studies illustrating how inadequate independence arrangements for financial sector regulators and supervisors have contributed to the emergence and scale of financial crises are presented by Marc Quinton and Michael W. Taylor in “Regulatory and supervisory independence and financial stability” IMF Working Paper, WP/0246, 2002. 6  BIS central bankers’ speeches  macroprudential agency will need to build new analytical techniques. Before the crisis, many central banks had already begun to develop the type of system analysis that will be required for macroprudential supervision (for example, in the assessment of interdependencies and systemic risks included in financial stability reports) – but the analytical techniques remain in their infancy. Control over a sufficient set of tools As well as the information and knowledge necessary for effective analysis, the macroprudential agency must have access to suitable instruments in order to achieve its mandate. Otherwise there will be unreasonable expectations of what the macroprudential agency can achieve, as it may be unable to address the system-wide risks that it identifies.

Indeed, we currently lack a precise but comprehensive definition of financial stability. In addition to giving the macroprudential agency a clear mandate, there should be a transparent decision-making process that avoids political and interest group pressure. This is necessary to ensure that the macroprudential agency is free to make interventions that impose short-term costs on financial institutions or the public in order to achieve long-term benefits through financial stability. 7 While the macroprudential agency must be independent, it must also be accountable for its actions (or lack of action). A clear mandate will help achieve accountability and make assessment of the macroprudential agency against its objectives easier. Information and analytical capability Effective governance arrangements must also ensure that the macroprudential agency has access to the information and analytical capability needed to quickly identify system-wide risks and to determine when and how instruments should be used in response to these risks. Information on exposures between institutions and on exposures commonly held by institutions is likely to be crucial for macroprudential supervision. Much of this information will need to be obtained from individual institutions and may overlap with the type of information collected for microprudential purposes. The collection and sharing of this information may be easier if the microprudential and macroprudential agencies are located together. An alternative approach would be to give a separate microprudential agency responsibility for collecting the information necessary for the conduct of microprudential and macroprudential policy.