The benefits of integrated supervision rest on the synergies between banking supervision and monetary policy given that banks play the crucial role in monetary policy transmission mechanism. In such a context, the supervisory information regarding the individual banks’ health can be highly beneficial to central banks in enhancing monetary policy effectiveness. On the other hand, expanding the central bank’s mandate with additional tasks may pose challenges with respect to central bank governance. As noted by Georgsson et al. (2015) the broader the mandate a central bank has, the more often it will be forced to find a balance between different objectives, tasks and tools. Studying the implications of financial stability tasks on central bank governance, BIS (2009) underlines the need for effective governance arrangements that should be designed to deliver sustainable conduct of monetary policy functions in combination with the additional mandate to contribute to financial stability. Further, the Report stresses the importance of clarity with respect to financial stability responsibilities, policy transparency as to promote accountability, full autonomy to safeguard against political pressures and undue influence from business and industry and close collaboration with other regulators in the country. Another important aspect is the central bank balance sheet which should be sound enough with strengthened risk-bearing capacity to enable successful implementation of monetary policy and support financial stability in case of emergency. Going back to banking supervision, besides the institutional setup, another important question raised by the crisis relates to the role of transparency and accountability in promoting more effective banking supervision.

The effects of monetary policy on financial market developments, in particular in fostering the subsequent financial bubble, have led to a reassessment regarding the conduct of monetary policy. The debate is under way and concerns various aspects, which I will summarise briefly. The first concerns the tools of monetary policy. Recent experience has shown that the approach followed by most central banks, based on inflation targeting (which involves forecasting inflation on the basis of an economic model and changing interest rates so as to ensure that inflation forecasts are in line with the target), does not sufficiently take into account financial developments, in particular with regard to asset prices, which may affect the stability of the markets and, in time, inflation. It is argued by some that monetary policy should act proactively to avoid the excessive tendencies of the financial markets, known as “leaning against the wind”. 5 In other words, one should be ready to hinder the creation of speculative bubbles, among other things by raising interest rates, before inflationary pressures emerge. This is easier said than done. If it is difficult to forecast inflation, it is even  2  Ben S. Bernanke (2002), “Deflation: Making Sure "It" Doesn't Happen Here”, remarks before the National Economists Club, Washington, D.C., 21 November 2002; Alan Greenspan (2004), “Risk and uncertainty in monetary policy”, remarks at the Meetings of the American Economic Association, San Diego, California, 3 January 2004.