The age of informal responsibilities, nods, winks, secrecy and instinct is long past.20 In no small part due to the Mais Lectures of my predecessors, particularly Mervyn King, we have today a regime for monetary policy that is both democratically legitimate and highly effective. It rests on clear ultimate objectives delegated by Parliament, on sound governance arrangements to support independence, and on transparency of policymaking. We are extending this sound framework with our strategic plan. We will reinforce these foundations in monetary policy. And we will broaden them to financial stability. The case for the independent operation of monetary policy is firmly established around the time-inconsistency of governments with horizons dictated by the electoral cycle. That timeinconsistency argument applies even more strongly to both microprudential and macroprudential policy given the large potential size and long duration of credit cycles. The  20  That approach is perhaps best captured by Montagu Norman’s remark in 1930 when pressed by the Macmillan Committee to explain the Bank’s actions: “Reasons, Mr Chairman? I don’t have reasons, I have instincts”. 8  BIS central bankers’ speeches  avoidance of potentially unpopular measures to boost the resilience of the financial system today can have disastrous consequences many years later. Moreover, being tough and avoiding crises has no obvious reward. It is hard to be given credit for a counterfactual. The Bank’s independence must be supported by good governance arrangements. Now that Parliament has developed them, we must make them work.

That will call for a detailed review of the risk models used by banks and the adoption of corrective measures should unjustifiable deviations be detected. Macroprudential policy Macroprudential policy, insofar as it seeks to identify systemic risks, prevent them and increase the industry’s resilience, has an important role to play. The very nature of these risks is global in dimension, meaning that coordination between the various authorities with responsibilities in this field is needed. At the same time, it should be borne in mind that while the risks may be considered common to the euro area as a whole, their impact and intensity vary from country to country. This heterogeneity not only depends on the characteristics of each country, but also on the particular juncture of the financial cycle. For example, at present certain euro area countries evidence risks associated with excessive real estate market prices, while in others this risk is not discernible. Macroprudential policy thus requires a coordinated approach by the various institutions, and at the same time attention must be paid to considerations of a national nature. In a monetary  BIS central bankers’ speeches  3  union like the euro area, the heterogeneity of the member countries’ financial cycles may be an important issue when it comes to designing these policies. The European Systemic Risk Board was set up in late 2010 as the authority responsible for macroprudential oversight in the European Union, empowered to issue warnings and recommendations in this connection under the “act or explain” principle.