Both areas need to work in close co-operation; central banks are more sensitive to macro-financial stabilisation goals; they possess more information about financial markets and the economy. Finally, the alternative model of joining macroprudential policy with microprudential supervision faces the problem that their supervisory objectives are focused on avoiding individual banks’ distress, for which they are accountable. In this perspective the UK institutional framework is, in my view, the most adequate. In the European monetary union, while monetary policy is designed for the euro area as a whole, macroprudential policy should be country-specific, even if co-ordinated, since financial cycles are not fully synchronised across countries. BIS central bankers’ speeches  3  Sixth, macroprudential policy should go beyond the banking sector and encompass market-based finance institutions and products. As this sector continues to expand and increase its role in lending to the real economy, as its interlinkages with the wider financial sector deepen, and as the footprint of large institutions grows, non-banks are clearly gaining in systemic importance. Moreover, the more policy-makers are effective in using macroprudential tools to constrain excessive leverage and credit growth in the banking sector, the more likely it becomes that there will be excessive adjustments in the non-bank sector through leakages. For these reasons, the coverage of the macroprudential framework needs to be extended to the shadow banking sector. Let me elaborate on one principle: macroprudential stress tests of the banking sector and their extension to non-banks.

Indeed, this is why, despite the EU-IMF programmes proposing a comprehensive approach to reforms, product markets reforms have tended to lag labour market reforms. And the consequence is not only the mismatch between different measures that I just described. It is that reforms have often been perceived as unfair, which in turn undermines popular support for the reform process. So for those that still need to press ahead structural measures, including the large euro area economies, there are two key points to take from this. 12  4  For a more in-depth discussion on the link between wage developments and labour market institutions see the aforementioned speech by Mario Draghi at Jackson Hole. BIS central bankers’ speeches  First, talking vaguely about structural reforms, but not doing them, is the worst of all worlds. It creates uncertainty over the path of real interest rates, without in tandem raising expectations of future growth. Second, while in “normal” times it might be acceptable to reform one sector at a time, in crisis times it is not. Fairness must be a priority. And the best way to align vested interests is to reform them all at once. Why the composition of reforms matters The aim of structural reforms should however be more than internal devaluation. It should above all be to raise productivity growth. As I said earlier, the key to structural reforms having positive short-term effects is firms and households expecting higher permanent income, and altering their behaviour today. And to achieve this, productivity growth is essential.