Challenges to turn this framework operational Let me now move on to challenges for this framework to become operational. We have been working since the end of 2012, on the preparation of the Single Supervisory Mechanism. Now that the Regulation has finally been approved by the European Council, the challenge is to turn this new framework operational before the ECB assumes its supervisory tasks. This poses, first, a logistical challenge as a new institution has to be created and numerous professionals have to be recruited. But most importantly, a complete set-up has to be developed to underpin the supervisory decision-making process, keeping it properly separated from the monetary policy structures at the ECB. And last but not least, before the SSM is fully operational by November next year, a comprehensive assessment of the European banking system will be performed by the ECB. 2  BIS central bankers’ speeches  From domestic to joint supervision The transfer of responsibilities from the National Authorities to the ECB should be a smooth process. The National Authorities have the expertise in the supervision of credit institutions. We will have to provide information, knowledge and staff, and we should not preclude the possibility of running certain processes in parallel for a while. Both the ECB and the National Authorities should seek to attain mutual confidence and understanding. The ECB supervisory powers will cover all tasks relating to the prudential supervision of all credit institutions. This entails supervising over 6,000 institutions.

Several analytical approaches for the identification of the factors contributing to the building up of systemic risk may be used and different policy tools may be employed to address them. One policy instrument introduced by Basel III is the countercyclical capital buffer. In line with our past experience of dividing responsibilities, the Ministry of Finance will implement countercyclical capital requirements from 2013. Norges Bank will make recommendations for its buffer decisions. We therefore need to strengthen our understanding of macroprudential regulation and develop relevant analytical tools for our recommendations. The financial crisis called renewed attention to the fact that developments in the real economy and the financial sector are closely linked. In response, Norges Bank has decided to provide monetary policy and financial analyses in a joint report published quarterly as from 2013. The reports will form the basis for both monetary policy decisions and for our advice on the buffer. The primary objective of monetary policy is low and stable inflation over time. We operate a flexible inflation targeting regime, which also aims at stabilising economic activity. Furthermore, Norges Bank gives weight to the risk that a prolonged period of low interest rates could lead to elevated risk-taking and excessive debt accumulation in the household and business sectors. There is always room for improvement. We will seek to improve systemic risk indicators and macro-stress testing approaches, keeping them at the research frontier. We will also work to better incorporate the financial sector in our macroeconomic models.