Further development of this framework promises to support financial and macroeconomic stability, within an overall strategy focused on achievement of our primary objective: price stability. Such considerations, in concert with the development of a new framework for macroprudential oversight, should permit to reduce the frequency, duration and economic impact of financial crises. These are themes that will be discussed in depth in the course of today’s colloquium. We have to make sure that the global financial system, as well as continental and national ones, are made much more resilient. Yet, it would be unrealistic to believe that financial crises can be eliminated. Recent experience has also demonstrated the need for central banks to be timely and agile in managing financial crises without ever – in any circumstances – losing their sense of the medium to long-term orientation to price stability. As regards the ECB, in the face of financial crisis, monetary policy was eased significantly through conventional means in late 2008 and early 2009, with key interest rates being reduced significantly. Moreover, non-standard measures, in the form of the ECB’s enhanced credit support were introduced. These aimed at maintaining an efficient transmission of monetary policy by supporting market functioning. Such measures were instrumental in the maintenance of price stability, since, in the face of downside risks to price stability, they ensured that the easing of the monetary policy stance was transmitted into a broader easing of financing conditions.

The policy mix must be well-balanced at the international as well as the domestic levels. Placing too heavy a burden on monetary policy in terms of achieving the main economic and financial balances is detrimental to its effectiveness. In particular, it diminishes its ability to maintain and consolidate financial market stability. This concern underlies the implementation of the Growth and Stability Pact in Economic and Monetary Union. By obliging fiscal policies to commit to stability, the pact allows the fiscal buffers to fulfil their role as stabilisers. Indeed, by their information and expectations, investors can penalise  4  BIS Review 41/2001  imbalances affecting the main world economies or diverging developments in different countries. To reduce this constraint, economic and monetary policies must be harmonised at the international level in order to achieve more balanced international financial relations. B. Financial authorities have to soften as much as possible some of the side-effects of the new financial market features. Let us first consider a few possible improvements as regards credit cycles: •  Provisioning standards should allow banks’ lending to be less pro-cyclical. As a general rule, provisioning standards require improvements so that provisions better reflect the actual inherent credit risk of loan portfolios. They should also be improved for macroeconomic purposes, so that banks’ lending behaviour becomes less pro-cyclical. These objectives could be achieved through a more forward-looking provisioning, whereby provisions are set up earlier – that is to say, in a perfect world, as soon as a loan is granted.