banks with the prudential supervision of financial institutions. since central banks are the only parties with enough information to decide whether lending on exceptional terms is reasonable. the crisis may, therefore, have reversed the pre - crisis tendency to separate microprudential supervision and central bank regulation. a clear example of this, close to home, is of course the ecb ’ s preparations for taking on new banking supervision tasks as part of the single supervisory mechanism. bis central bankers ’ speeches the third lesson. the crisis has also taught us that price stability alone is not enough to ensure financial stability. and that adopting a micro - prudential perspective does not suffice either. we know that the key factors in the crisis were the links between various financial players, and the links between financial institutions and sovereigns. and so we are aware of the need to also have a macro - prudential perspective as well. this perspective places the financial system as a whole, including its pro - cyclicality, under constant scrutiny. unfortunately, this scrutiny was clearly lacking in the pre - crisis framework. there is also some acceptance of a key role for central banks here, given that monetary and macro - prudential policies are very much interdependent. here in the netherlands, dnb has indeed been entrusted with this role. from 2014 onwards, enhancing financial stability is now also explicitly embedded in dnb ’ s mandate. we ’ re now on the verge of adopting a broader view of what constitutes central banking. the financial crisis has clearly brought the core functions of central banks closer : monetary and liquidity policy, micro - and macro - prudential regulation and supervision, stability and reliability of payment and settlement systems …. they all complement each other! so we are gradually beginning to see this broader view taking shape. yet there are still many operational questions we need to answer. for instance : what are the implications for monetary policy strategy of incorporating financial stability risks? how should we deal with the interactions between macro - prudential policy and monetary policy and between monetary policy and supervision of banks? how can central banks contribute to cross - border payment cooperation and ensure level playing fields without discouraging competition and without creating undue uncertainty about regulations? and above all, and this is very important in my view, how are we to deal with the major institutional challenges of bringing these core functions of central banks closer together and preserving the synergies between them? luckily, these are some of the very questions that you

that generally meant outside the central bank! ( although there were some exceptions, including dnb ). these were the times that we now sort of nostalgically refer to as the great moderation. but then, however, came the great financial crisis. and we moved from the great moderation to the great recession. and, here in europe, to the emu crisis. these events painfully reminded us that financial instability can indeed severely damage the broader economy. has the recent crisis altered the general view we held for so long? this is a relevant question for us, central bankers, given two well - known pitfalls we have to avoid as monetary policy - makers. the first pitfall is reacting too late. during the interwar years, for instance, central banks in the major economies were “ prisoners ” of their own economic orthodoxies and so made mistake after mistake. my institution, too, was dogmatic in believing in the benefits of the gold standard, even in the face of the huge losses due to the devaluation of the british pound. the second pitfall is that we ’ re so afraid of reacting too late, that we respond too soon. how can we avoid both these traps? i believe there are two preconditions that we must meet. first, we should protect the independence of central banks in monetary policy matters, in all circumstances. the 19th century economist david ricardo already explained that governments would almost certainly abuse their power to issue paper money if, for instance, they were forced by war into creating money. he argued that central banks should instead be governed by individuals entirely independent of government. central banks should – [ quote ] “ never, on any pretence, lend money to the government, nor be in the slightest degree under its control or influence ”. [ unquote ] bis central bankers ’ speeches there are certainly many episodes in our history, when the central bank ’ s relationship with the state has come under pressure. for example, after belgium – at that time known as the southern netherlands – became independent in the 1830s, the dutch government ’ s deficit soared to unprecedented levels. and when, at that time, dnb was unwilling to provide credit to the state in return for treasury notes as security, the king sighed that he could expect little help from this institution. all i ’ m saying here is that preserving central bank independence is a delicate balancing act, but also one that ’ s vitally important to pursue. the second precondition