So far, they have been effective with regard to market confidence, and have contributed to a significant reduction in various credit risk premia. One channel relies on portfolio composition effects. I know that some contributions presented here made that point in a very sophisticated framework, i.e. positive feedback effects may be generated through the greater liquidity of investing entrepreneurs. Obviously, the soundness of the financial system is critical to the success of these unconventional policies. These policies must be viewed as state contingent policies: they are conditional on the state of the economy. A significant part of the intervention is short-term oriented, as the acquisitions focus on short-maturity assets. Furthermore, the assets purchased are usually of very good quality. In most cases, and in particular in the Eurosystem, the increase in the monetary base is determined endogenously by the banking system, motivated by banks’ preference for liquidity and thus by the state of stress of the banking system. Finally, these measures tend to address aggregate risks. These unconventional measures would automatically unwind, as improvements in inter-bank and credit markets would reduce the need to use these facilities. Financial market indicators, risk premia components and their determinants as well as monetary indicators (inflation expectations in addition to monetary and credit developments) should be taken into account to carry out the assessment. Some implications for financial stability This crisis has triggered a debate regarding possible tools to be developed to prevent the build up of financial imbalances and design countercyclical regulatory policies.

Some papers presented during this conference made such a point, calling for a new macroprudential approach and proposing measures of systemic risks that capture risk spillovers and tail risk correlations. I am of course very sympathetic to this approach and I also think that such measures should form the basis of any macro-prudential regulation. The general principle of this macro-prudential regulation is straightforward: it consists in ensuring that supervision manages to limit risks for the stability not only of a particular institution, but also of the entire financial system. Its implementation is however a bit more complex and raises several policy issues: first, there are questions on how to calibrate these macro-prudential instruments so as to address common exposures across financial institutions and the contribution of each institution to system-wide risk; a second issue is how to dampen the inherent procyclicality of the financial system; a third issue is the respective importance of rule-based approaches versus more discretionary tools. Finally, questions  2  BIS Review 74/2009  remain regarding the institutional set-up, in particular as to which institutions should be involved in the process and make the decisions. These issues are currently being debated in various circles and the recently-published de Larosière report made some substantial proposals regarding the institutional set-up. I will not elaborate on all these issues but simply touch on a couple of them.