the value of the credit / gdp gap is below 2, and 2. 5 when it is above 10 % ; for gaps between 2 and 10 % the buffer is calculated as 2. 5 / 8 times the value of the credit / gdp gap exceeding 2 %. source : bis calculations. however, much more work is required, for example to allow the approach to include other regulations, to determine how best to calculate the sustainable level of credit in the long - run, and to overcome the econometric problems when estimating the rule. 14 and it is a long way short of being something that can guide the practical use of macroprudential policies. summary in this speech, i have broadly illustrated some of the thoughts and reflections that macroprudential ( and other ) policy - makers will need to consider going forward. there are many challenging issues : some of them are new ( and particular to macroprudential policy ) but many of them are not, such as the need to manage the overlap between policy areas. however, we can already see system - wide risks again building in financial systems, in sweden and internationally – so it is important that we now face these challenges head on. the first challenge will be designing effective macroprudential frameworks to ensure that the appropriate agencies are given the appropriate mandates, sufficient capability, and policy instruments to deal with threats to financial stability. governance arrangements will play an important role. they will help to clearly define the role of macroprudential policy, to ensure that it can be used effectively, and to manage the interaction with other policy areas. while there are likely to be numerous solutions for the design of effective governance arrangements, the issues and key concerns are fairly well defined and understood. the riksbank faced several econometric problems when attempting to estimate the capital adequacy rule shown in figure 4. for example, we used a short time series and faced an endogeneity problem ( because bank lending is included on the left and right hand side of the rule ). therefore, in this exercise, we have simply selected coefficients that achieve what we believe to be an appropriate level of sensitivity between capital adequacy regulation and the output gap and the bank lending gap. bis central bankers ’ speeches unfortunately, as i have discussed, it is clear that we do not have the same understanding of the more technical aspects of how macroprudential instruments should be used and of how they interact with other policy areas. i have

for distributing risks are reduced. instead, i see the international work already being carried out into producing norms for various areas as a better means of promoting stability and reducing risks. to summarise, the credit and foreign exchange markets play an important role in society by mediating payments and savings, both nationally and internationally. the best way to prevent excessive risk taking is not to tax transactions, but to ensure that more countries pursue fiscal and monetary policy aimed towards stability, with a suitable exchange rate regime, and follow the international regulations and norms that promote stability. these norms must be continuously adapted to developments on the financial markets and in the rest of the economy, in order to limit the risks in the financial sector.