The ESRB approach uses the concept of residual risk, which is the difference between the level of risk and the current resilience of the financial system.12 In setting up the framework, policymakers need to establish the level of residual risk that they consider acceptable. Regular macroprudential policy decisions would then follow a two-stage process. Policymakers assess the level of residual risk in the system, and if that diverges from the acceptable level, they then assess the policy tightening or loosening required to realign it. Conclusion Let me conclude. Over the past eight years, the implementation of macroprudential policy in Europe has substantially improved, and the ESRB has played a valuable role in facilitating that process. The ESRB’s success derives from its broad membership. Systemic risk takes different forms over time, so discussions incorporating a wide range of viewpoints and experience are vital if policymakers are to successfully safeguard the stability of the financial system. 1 See, for example, European Commission Staff Working Document, Coping with the international financial crisis  at the national level in a European context, p.11, which shows that even in 2015 the contribution of the state to financial sector repair represented more than 10% of total public debt in many countries. 2 ESRB (2014), ESRB Flagship report on macroprudential policy in the banking sector. 3 Kelber, A. and Monnet, É. (2014), “Macroprudential policy and quantitative instruments: a European historical  perspective, Financial Stability Review, Banque de France, April, 18: 151–160. 4 Some discussion had certainly taken place prior to the crisis.

The loss in housing-related wealth from cycle peak to trough is staggering, something of the order of USD 7 trillion. 1 Part of these losses are paper losses, since not everyone entered the market at its peak and a portion of these losses have been absorbed by households themselves; the rest must be borne by financial intermediaries. To this day the worldwide write-downs by the financial sector, including, but not limited to recognised losses from the housing sector, are estimated at USD 1.7 trillion. 2 However, we are still counting, as the latest results published by some of the world’s major financial institutes reveal. There have been many examples of real estate crises in the recent past, including one in Switzerland in the early nineties. What distinguishes the current crisis is its breadth and international character. These two characteristics are intimately related: the rapid expansion of subprime mortgages and the internationalisation of the mortgage-based financial instruments brought international capital to the US real estate sector. This capital helped inflate the property bubble in the first place; it also explains why the subsequent crisis turned into an international financial market event and then into a global economic crisis! A quick back-of-the-envelope calculation comes up with a figure for lost flow income of at least 10% of world GDP. We have escaped a new Great Depression, but in the end worldwide income losses have probably exceeded the income losses associated with the Great Depression.