by the superintendence of securities and insurance ( svs ), and pension funds, which are large players in our financial system, are regulated by the superintendence of pensions ( sp ). in this setting, the preservation of financial stability crucially relies on the capacity and ability of all players involved, including us, to share our views and coordinate our actions. this is currently done through routine interaction between us, and more formally through periodic meetings in the financial stability council, an entity created precisely to guarantee such coordination. 2. financial stability tools let me now turn to the discussion of what are the most appropriate tools to pursue financial stability. of course, this discussion draws from the previous one on whether the central bank should be in charge of it. but let ’ s forget about that for a second to tackle one of the main aspects of this debate, which is whether a central bank that cares about financial stability should use the policy rate as a tool. there are different views on this regard, both in academic and policy circles that you probably know well. i am among the ones who think that the interest rate is often too blunt a tool to deal with financial stability issues, especially when they have clear sources that can be addressed more directly, since the policy rate affects every sector of the economy. furthermore, under some circumstances the required movement in the policy rate for financial stability purposes may be in conflict with the price stability mandate. assuming that such tradeoff is absent, that reasonable movements in the policy rate are expected to be useful to deal with financial stability concerns, and that there are no better tools at hand, it may be reasonable to rely on it as a tool for financial stability. however, in many situations at least one of these conditions would not hold and other options would prove more efficient. for instance, more often than not financial stability concerns are related to specific segments of financial intermediation. concerns about rapid growth in credit to the housing sector can be tamed by changes in loan - to - value or debt - toincome ratios, for example. dynamic provisions related to general or specific forms of credit may also help banks maintain a solid position through the financial cycle, and discretional changes to reserve requirements may also help rein in rapid bank credit expansion. of course, all these measures are not cost free and their use must properly consider these costs against specific financial stability concerns. for instance, increases in reserve requirements affect only the banking sector, which may lead to disin

on absolute returns ( such as hedge fund managers and insurance companies ) to invest in more risky assets. it may also make it more profitable to engage in carry trades and create currency or maturity mismatches. on the unintended side, the success in achieving macro stability may change the perception of agents about the riskiness of the environment and lead them to take more risky bets in the expectation that good times will continue indefinitely ( or at least until the bet pays off ). also, the way to deal with bubbles in monetary policy in the us, applying the so - called greenspanput ( blinder and reis, 2005 ), may have increased the chance of bubble formation ( de gregorio, 2011 ). on the other hand, micro and macro prudential regulatory tools, such as caps on credit growth or capital requirements have direct consequences on the cost and availability of credit, with the corresponding impact on investment, consumption, employment, and output, and the transmission channels of monetary policy. however, the links between macro and financial stability as goals, as well as in the cross impact of their main tools, do not mean that they can be dealt with using a single type of instruments. while, as highlighted above, interest rate movements affect credit and asset prices, they are not the most appropriate for addressing financial stability concerns. for instance, raising the interest rate could in principle tame stock - or house - price growth in a closed economy, helping to prevent the formation of bubbles or bursting them at an early stage, before they threaten financial stability. but even if it were possible to identify a bubble from a fundamental - driven asset price increase, controlling asset price growth may require substantial increases in the interest rate, which will reduce credit supply and the prices of other assets that may or may not be part of the bubble, having negative consequences on output and inflation. in other words, the impact of such policy would be felt across the board in financial markets, on top of the detrimental impact it would have in the real economy by unnecessarily depressing output, employment and real investment. in an open economy, such policy may be ineffective in controlling asset price growth and may even worsen the prospects for financial stability. i will tackle this further in my coming discussion of capital flows. the same criticism applies to the use of regulation to achieve macro stability. it could be possible to use bank capital requirements to control inflation through the supply of credit and real activity, but it would raise the cost