Moreover, these measures should be adopted in line with a recovering U.S. economy and ongoing financial stability, so this scenario is not necessarily detrimental to the emerging economies, but rather could be a normalization from the extraordinary conditions prevailing in the advanced economies over the last five years. If confirmed, this normalization would reduce concerns about an excess supply of foreign capital that have been emphasized in several Financial Stability Reports. These concerns relate to excessive borrowing by companies and banks abroad and asset price misalignments. Domestically, a sharper deceleration of expenditure, and particularly investment, is a possibility. This would entail, with some lag, an also sharper or faster slowdown of the other components of expenditure, triggering inflationary pressures and affecting the course of monetary policy. Lately there has been an increase in provisions for consumer credit, coinciding with a deterioration of the payment behavior of this segment, somewhat worse than could be  BIS central bankers’ speeches  5  expected given the economic cycle. Although the banking system’s capitalization levels are above the regulatory minimums and the stress tests we present in the Financial Stability Report indicate that they are sufficient to deal with a severe shock to growth and lending conditions, it is essential to closely monitor the evolution of these indicators and any factors that may affect them. In this sense, it is important to avoid any measures that might encourage non-payment.

Policy makers very well recognize that financial instability can harm growth and cause serious disruptions, revealing itself in decreased market liquidity, excessive volatility in asset prices and ending up in banking and currency crises. Therefore, many central banks now consider financial stability as an objective complementing the price stability. In recent years, there has been a noticeable increase in central banks’ autonomy in monetary policy, and also a transfer of supervisory and regulatory responsibilities regarding financial institutions to other autonomous bodies. The maintenance of financial stability is, and will remain, a core function for all central banks. In the modern era, central banks' involvement in matters relating to financial stability has become broader and more formalized. Central banks recognize financial stability as an important and self-contained objective. Central bankers see price stability and financial stability as connected due to the fact that serious disruption in the financial system would affect the implementation and effectiveness of monetary policy, while macroeconomic stability helps reduce risks to financial stability. BIS Review 76/2007  1  Obviously, measurement of financial stability is not as straightforward as price stability since there is no single measure or indicator, which shows if the financial system is stable or not. Considering the substantial developments in innovative financial products including hedge funds and the contagion risk inherent in them, accurate statistical data requirements step forward. Moreover, a thorough assessment of financial stability makes it essential to monitor the risks driven by household and corporate sectors.