part of our reflections on the future of macroprudential policy after the covid - 19 pandemic. these challenges relate to the creation of what we call “ macroprudential space ” and to the complementarities between monetary policy and macroprudential policy in a monetary and banking union. as i will argue, addressing these two challenges will increase the effectiveness of the macroprudential framework and strengthen the resilience of the euro area banking sector to major unexpected shocks in the future. macroprudential space the experience of the initial phase of the pandemic illustrated the importance of having sufficient releasable capital buffers in the banking sector. when the pandemic struck in early 2020, macroprudential authorities in the euro area had little room for manoeuvre to release macroprudential capital buffers. only seven euro area countries ( including the three home countries of my fellow panel members ) had enacted or announced a countercyclical capital buffer requirement above zero. in the euro area banking sector as a whole, countercyclical 1 / 3 bis central bankers'speeches capital buffer requirements accounted for only 0. 2 % of risk - weighted assets at the end of 2019. by contrast, structural buffer requirements, comprising the capital conservation buffer, systemic risk buffers and buffers for systemically important institutions, stood at 3. 4 %. unlike the countercyclical capital buffer, structural buffers were in principle not designed to be releasable. but, unlike minimum requirements, buffers are there to absorb unexpected losses and to help sustain lending under stress conditions. in short, the fact that only a tiny fraction of capital buffers has been explicitly releasable limited the macro - financial stabilisation function of macroprudential policy. banks ’ reluctance to dip into their existing buffers seems to be driven by a desire to avoid market stigma and to keep some distance from the threshold for automatic restrictions on distributions. this could be an area of concern at the system - wide level, given that recent empirical evidence of bank behaviour during the pandemic suggests that banks are less active in maintaining credit supply if they operate close to the combined buffer requirement. a contraction of the credit supply could compromise the recovery and increase the risks to financial stability. recent research by ecb staff further suggests that having higher countercyclical capital buffers at the onset of the pandemic, which could have been released during the current crisis, would

of risk materialisation, releasing macroprudential policy buffers can support monetary policy via the impact on banks ’ credit supply. 2 / 3 bis central bankers'speeches exploiting the complementarities between monetary and macroprudential policy requires a structured approach to the interaction between the two policy areas. in a monetary and banking union, the institutional dimension to the issue requires further reflection in the medium term. under the current institutional architecture of the monetary and banking union, monetary policy and microprudential policy decisions for significant institutions are taken centrally in the euro area. by contrast, macroprudential policy decisions are primarily taken in a decentralised manner by national authorities, with the ecb only having asymmetric powers for certain instruments, as set out in the ssm regulation. in particular, the ssm regulation assigns to the ecb the power to apply more stringent measures or higher requirements for a specific set of instruments defined in the single rulebook. based on this institutional setting, a major challenge lies in how to foster a coherent policy mix across macroprudential policies and monetary policy in the euro area, taking into account that assessing the interaction and complementarity is even more important in a monetary union than in a single jurisdiction. a coordinated macroprudential policy response across the euro area is vital to strengthen the impact of policy actions and to support monetary policy, for instance through the release of macroprudential buffers in a system - wide crisis. greater coordination of macroprudential action across the euro area would also foster timely policy action, reduce fragmentation across national lines and better account for cross - border systemic spillover effects. furthermore, beyond coordination, the use of selective macroprudential tools at the system - wide level should also be considered, without prejudice to the ability of the national macroprudential authorities to act at the national level to address idiosyncratic shocks. looking ahead, i believe we need to reflect on the merits of improving the current governance framework for macroprudential policy in the euro area by complementing it with a centrally managed countercyclical macroprudential tool. more specifically, the reflections should in my view consider an increased role for the ecb ’ s governing council in macroprudential policy, given its special role in and responsibility for both monetary and macroprudential policy in the euro area, as set out in the treaties and in the ssm regulation. conclusions macroprudential policy