term policy trade offs in an environment of very low or even falling inflation, the relative “ bluntness ” of the monetary policy tool and the often difficult situation in terms of available information and analysis, put certain limits to the use of monetary policy for financial stability purposes. moreover, market excesses and the pro - cyclicality of the financial system are also due to factors other than excessive credit growth and high leverage. consequently, other policy tools must be employed – notably regulatory policy instruments – by the supervisory authorities in order to reduce procyclicality and also limit the emergence of systemic risks in the financial system. this assessment is also compatible with tinbergen ’ s rule that, in case of trade - offs between objectives, policy makers need as many ( independent ) policy instruments as objectives, in order to fully achieve them. furthermore, the extraordinary nature and consequences of the financial crisis – and here i am referring both to how close we came to a global financial meltdown and to the overall costs of the crisis for tax - payers in terms of losses in output and employment – have painfully demonstrated the need for improving and broadening the regulatory framework, by strengthening both the micro - prudential supervision of individual institutions and the macroprudential supervision of the financial system as a whole. the current crisis has revealed a general under - appreciation of systemic risks in the existing framework of financial regulation and supervision, which tends to focus on the stability of individual institutions, markets and infrastructures. the crisis also revealed that macrofinancial factors, the inter - connectedness of markets and institutions and financial globalisation play an important role in determining the size, nature and propagation of systemic risk. therefore, it essential – and there is a broad consensus on this – to establish an effective framework for macro - prudential supervision that will ensure a systematic, allencompassing and integrated analysis of systemic risks as well as the formulation of appropriate policies to prevent address such risks. the macro - prudential approach to supervision focuses on the financial system as a whole and involves the monitoring, assessment and mitigation of systemic risk, namely the likelihood of failure of a significant part of the financial system. it is important to recognise that systemic risk is partly endogenous as it depends on the collective behaviour of financial institutions and their inter - connectedness, as well as the interaction between financial markets and the macroeconomy. macro - prudential policies aim to prevent, or at least contain, the build

its power and means ) to contribute to financial stability, without interfering with the performance of its monetary policy tasks. third, the new body responsible for macro - prudential supervision in the eu should be independent in carrying out its tasks and pursuing its objective of assessing and regulating systemic risk. the fact that the esrb will be responsible for the assessment of systemic risks and the formulation of pertinent policy recommendations, and that it will not be involved in the implementation of these recommendations strengthens the argument for its policy independence. fourth, the effective performance of macro - prudential supervision in the eu will require addressing a number of legal, institutional and governance issues. there are two key requirements for the successful functioning of the esrb : the first is the establishment of a comprehensive and relevant information base as well as effective information - sharing and cooperation between the esrb and the european supervisory authorities. the second is that suitable and sufficient mechanisms are in place in order to ensure the implementation of the macro - prudential recommendations. finally, i should emphasise that the ecb is actively preparing, in collaboration with the national central banks, in order to provide the appropriate analytical statistical and administrative support to the esrb.