As I said, the crisis has led to an overhaul of financial regulation, centred on three main areas: the strengthening of microprudential regulation; the development of macroprudential regulation; and the stepping-up of international coordination. These new regulations provide a scenario of greater security for the financial sector. If we have learned anything in recent years it is that there is always a risk of another crisis. But I believe we are now better prepared. The new regulations impose greater capital 5/7  requirements on financial institutions and stricter supervision, including new instruments for the early identification of financial risks. The main challenge for regulatory policy is now to fully implement the reforms approved and to closely monitor their impact on the financial sector, and, where appropriate, to calibrate the new regulatory framework. Along with this general challenge, I would highlight two elements that will have a bearing on regulatory policy management. Firstly, the interrelatedness of monetary and macroprudential policy. Generally, both policies can be complementary. But, as the years of expansion prior to the financial crisis demonstrated, the economy’s cyclical position and the accumulation of financial risks may become decoupled. Financial imbalances thus built up, and yet inflation was contained and the real economy appeared to show no signs of overheating. Central banks will have to have both policies strike a balance in order to achieve the dual objective of economic and financial stability. Here it is important to have an institutional structure that ensures synergies and consistency between monetary and prudential policies.

The challenges facing central banks can be grouped in three areas:   first, what is being labelled as the “new normal” in the macroeconomy and its implications for monetary policy;    second, the challenge for financial regulation policies;    and third, the new challenges posed by financial innovation and the new technologies. The impact of the crisis on monetary policy But before addressing these challenges, I think it might be useful to take a short step back to remember where we have come from. We can only understand today’s challenges if we bear in mind the changes, often far-reaching, that have come about in central banks in response to the crisis. The global financial crisis came about following a build-up of bubbles in the advanced economies, mainly in the financial and real estate sectors, a process to which easy financing conditions proved conducive in a setting in which risks were not appropriately priced. In any event, what was surprising was the intensity and global nature of the crisis that broke in 2008. Given highly integrated financial markets and complex interconnections, instability spread rapidly, leading to the most serious financial crisis since the Second World War. In the European Union the crisis was, moreover, exacerbated by a double-dip recession, which has prolonged the recovery period and has also revealed the weakness of the euro area’s institutional framework. The crisis also left the monetary and regulatory policy “manual” that central banks had been applying in tatters.