Secondly, we need to revisit the second (monetary) pillar in light of financial stability concerns – which are increasing. Monetary and macroprudential policies have traditionally been guided by a separation principle2. But in practice, macroprudential tools have limitations, while over the past years we have considerably extended the monetary toolkit. As a result, it may now sometimes make sense to approach monetary policy decisions in order to deliver the monetary stance called for by our price stability objective while choosing the appropriate combination of instruments that minimize risks to financial stability. Such a soft coordination is more promising than a strict separation. Lastly, how should we incorporate climate change in our monetary policy analysis? It affects price stability in the long run, and the value of our collateral, notwithstanding the fact that “a high level of protection and improvement of the quality of the environment”3 belongs to our secondary objectives in the EU Treaty. Speaking about financial stability, let me add a few words on Basel III. The agreement reached in December 2017 is the finalisation of an unprecedented and fruitful regulatory effort that began in 2009. I strongly reiterate that: it is a fair and reasonable compromise. The US had to accept the permanent recognition of internal models elsewhere, although their banks don’t use them; and both Europe and Japan had to accept an increased comparability of these internal models, leading to some increase in their capital requirements. Some people, starting with banks themselves, are now contesting the agreement.

3/4  BIS central bankers' speeches  It has been said that regulators are pessimists in our DNA and always inclined to worry about things going wrong – and certainly, we cannot ignore the possibility of the failure of key FMIs no matter how remote, and this may occur in FMIs overseas. I started my speech this morning, noting the increasing connectedness between markets. This is true in the ‘life’ of a CCP - and can be true in its ‘death’ too. The failure of an internationally active CCP, that provides critical services in multiple jurisdictions, will have significant cross-border impact. When a CCP fails, its members are inevitably affected. Such members are likely to also have relationships with other financial institutions, or may trade and clear on other trading venues and CCPs. Through these network of interdependencies, the default of a CCP can trigger destabilising effects not only in the home market it serves directly, but outside of it. It is therefore important for authorities of jurisdictions that may be affected by a CCP’s failure to participate in that CCP’s resolution planning. Similar to the establishment of Supervisory Colleges to support ongoing supervisory co-operation, setting up Crisis Management Groups (CMG) for CCPs will allow the cross-border impact to be considered in resolution planning. In a failure situation, when resolution actions are time-sensitive, it may be necessary to limit the size of a CMG to enable efficient and effective discussions. But in normal times, resolution planning can benefit from a broader participation of relevant authorities.