. 8 let me elaborate. the effectiveness of macroprudential policy depends importantly on its interaction with monetary policy. in particular, it hinges on the “ side effects ” that one policy has on the objectives of the other. on the one hand, monetary policy can thwart the intentions of macroprudential policy. we all agree that the monetary policy stance affects risk taking of the financial system as a whole. while macroprudential instruments typically target specific vulnerabilities, monetary policy affects the cost of finance for all financial institutions – including the shadow banking sector. as such, in the words of jeremy stein, it “ gets in all of the cracks and may reach into corners of the market that supervision and regulation cannot ”. 9 this is most evident in a crisis situation, such as the one we are still witnessing in the euro area. standard and non - standard monetary policies that provide ample liquidity may avoid a collapse of the banking sector. but they can come at the expense of reduced incentives for c. kindleberger and r. aliber ( 2015 ) manias, panics and crashes : a history of financial crises. palgrave macmillan. 7th edition. a. haldane ( 2011 ) risk off. speech delivered on 18 august. a. crockett ( 2000 ) marrying the micro - and macroprudential dimensions of financial stability. bis speeches, 21 september. p. hakkarainen ( 2016a ) capital - based macro - prudential instruments - what type of policy tools are needed to address macro - prudential risks in the banking sector? notes for the panel discussion on " capital - based macro - prudential instruments - what type of policy tools are needed to address macro - prudential risks in the banking sector? ” eu commission's public hearing on the review of the eu macro - prudential framework. brussels, 7 november. ibidem. p. hakkarainen ( 2016b ) monetary policy - which road ahead. notes for the session “ monetary policy : which road ahead? ”. frankfurt european banking congress, frankfurt am main, 18 november. j. stein ( 2013 ) overheating in credit markets : origins, measurement, and policy responses. speech at the federal reserve bank of st. louis research symposium on “ restoring household financial stability after the great recession : why household balance sheets matter ”, 7 february. bis central bankers ’ speeches banks to recapitalize and restructure

klaas knot : are we all macroprudentialists now? keynote speech by mr klaas knot, president of the netherlands bank, at a seminar entitled “ tomorrow ’ s banking and how central banks have developed in last 15 years ”, organized by the bank of finland, helsinki, 16 january 2017. * * * it is a great pleasure for me to speak at this conference at the bank of finland, in which we pay tribute to pentti hakkarainen. as deputy governor and chairman of the finnish fsa, pentti has played an important role in the areas of monetary policy and macroprudential policy. in my remarks, i would like to focus on the increased importance of macroprudential policy for central banks, and elaborate on some of pentti ’ s main insights. i want to raise three main points. my first point is that financial crises have always happened and will always happen. and they do not result from some exogenous, extreme event. rather, to use pentti ’ s words, financial crises can “ be interpreted as an extreme manifestation of the financial cycle phenomenon ”. 1 by financial cycle we understand systematic patterns over time in the financial system that can have important macroeconomic consequences. typically, financial crises are preceded by booms characterized by a combination of intensified financial innovation, robust and widespread appetite for risk, and a favorable economic environment. this favorable environment could for example reflect new growth impulses from technological innovation, international trade, and mobile and volatile international capital flows. these patterns are indeed not specific to the global financial crisis, nor – if we look back in time – to the great depression. in fact, the first truly global financial crisis in modern history – the south sea bubble of 1720 – originated in england, france and the netherlands. 2 all key ingredients of an extreme financial cycle gone wrong can be found here. ( the famous tulipmania that hit the dutch republic in 1636 - 37 shared some but not all of these elements, and its dynamics can be compared to the dotcom bubble rather than a global financial crisis. ) the burst of the south sea bubble followed a period of strong economic growth. the discovery of the economic potential of the new world had led to a shift in global trade towards the triangle that brought manufactured goods to africa, africans as slaves to the new world, and commodities to europe. there had been rapid innovation in financial engineering, spurred by some form of deregulation. this allowed greater risk