Boris Vujčić: Challenges for policy responses within the European Union in the context of post-crisis reconstruction Keynote speech by Mr Boris Vujčić, Governor of the Croatian National Bank, at the international conference “Economic and Financial Cycle Spillovers: Reconsidering Domestic and Cross Border Channels and Policy Responses”, organized by the National Bank of the Republic of Macedonia, Skopje, 7–8 April 2016. *  *  *  I would like to thank Saša Cerovac and Ivana Herceg for their help in preparing these remarks. Dear Ladies and Gentlemen, I am truly honoured to be invited as a keynote speaker at this conference that gathers central bankers and policy makers in the region to discuss issues raised by the heightened levels of distress and volatility in financial markets. With two episodes of severe distress behind us, the global financial crisis, followed by the euro-area crisis, many observers share a conviction that today we might be observing the seeds of a new similar incident waiting to happen. Some point to possible bubbles in asset markets, some to distorted business models in (parts of) the financial industry, and quite a few of them see a new crisis lurking behind emerging market developments, which may start the latest episode of a “ crisis trilogy”, as recently pointed out by Andrew Haldane from the Bank of England 1. To circumvent the reoccurrence of a lengthy and costly crisis, we need to improve our understanding of the processes underlying crisis episodes and adjust our policies accordingly.

Some countries, for example, try to internalize the costs of registering subsidiaries as branches by increasing depositor and retail consumer legal protection through an option for retail clients to cancel  24  Praet, P. (2015): Structural reforms and long-run growth in the euro area, intervention on the panel “Long-run growth, monetary policy and financing of the economy” at 43rd Economics Conference of Oesterreichische Nationalbank, Vienna, 15 June 2015. 25  European Central Bank (2015): A framework for analysing and assessing cross-border spillovers from macroprudential policies, Financial Stability Review, Special features, May 2015. 26  Czech National Bank (2014): Box 7: Fragmentation, Ring-fencing of Local Activities and Foreign Bank Branches, Financial Stability Report, 2013/2014. 27  Recommendation ESRB/2015/2 on the assessment of cross-border effects of and voluntary reciprocity for macro-prudential policy measures. BIS central bankers’ speeches  7  liability/claim without penalty, extraordinary contributions to deposit guarantee systems, etc. The potential for intra-banking-group arbitrage could also be diminished if a macroprudential measure is applied at the appropriate level of consolidation and/or exposure location, making reciprocity arrangements a necessary condition for mitigating these effects. Since it may be difficult to simultaneously hit macroprudential and monetary objectives due to the general low degree of synchronisation between real and financial cycles, the policy coordination of the two is an essential prerequisite for simultaneously stabilizing the general price level and financial movements as there are “important synergies and interactions between the two policy functions” (Constancio, 2015).