In this context, the ESRB is further analysing systemic risks posed by liquidity mismatch and leverage in investment funds. Moreover, the report identifies considerable interconnectedness between banks and shadow banks, particularly money market funds (MMFs). Approximately two-thirds of MMFs’ total assets are related to banks, mainly in the form of debt securities. This interconnectedness was a key consideration underpinning the ESRB’s recommendation that MMFs should have a fluctuating net asset value, rather than promising a constant one, and that they should be subject to enhanced disclosure and liquidity requirements.12  Macroprudential policy beyond banking More generally, the ESRB is analysing connections across different sectors and geographies of the financial system. This cross-cutting analysis informs the development and calibration of macroprudential policy beyond banking. In this way, targeted research enhances the quality of policymaking and thereby improves the resilience of the financial system. 2/4  BIS Central Banker's Speeches  The ESRB believes that the smooth functioning and systemic resilience of derivatives markets can be improved by requiring standardised over-the-counter contracts to be centrally cleared and traded on exchanges or electronic trading platforms, in line with the commitments made by the G20 in 2009. The EU’s first central clearing obligation came into effect in June this year for certain interest rate derivatives, and will gradually be extended to other transactions. The ESRB is monitoring the effects of this obligation on collateral demand and network structure, and will publish its findings in due course.13 The ESRB is also leading research into new macroprudential instruments beyond banking.

One policy under consideration is the macroprudential use of margin and haircut requirements.14 Setting margins and haircuts in a conservative or countercyclical manner may help to contain the excessive build-up of leverage. In addition to “leaning against the wind”, margin and haircut requirements can also improve financial stability by mitigating illiquidity spirals.15 This is particularly important given that an imbalance between the demand for and supply of liquidity could amplify or transmit shocks through the financial system. Conclusion Let me conclude. Since the ESRB’s foundation, Europe has strengthened its regulatory, supervisory, and crisis management frameworks. The ESRB has contributed to building a rich set of macroprudential policy tools for banks,16 and continues to coordinate the calibration of those policies. The European financial system has thus become more resilient, with greater loss-absorbing capacity. The financial system is also adaptive. Its adaptability is a strength, helping it to meet the challenges of the current environment. But it also means that policymakers must remain vigilant. The need for vigilance is why the ESRB has always warned against policy inaction bias. Macroprudential policy is still in its formative years, and policymakers are understandably cautious about deploying novel instruments. But when we see systemic risks, we should act. Greater risk arises from inaction. So as you listen to the presentations at this conference, think about the implications for macroprudential policy in a changing world. Is the macroprudential policy stance appropriate? Are the tools at our disposal effective?