in three key areas to counter systemic risk more effectively : better analytical tools, new instruments that counter the development of risk outside the banking sector and a clearer framework to govern policy actions. the past decade has seen a sustained improvement in the tools available to assess risks to financial stability. better data and better modelling techniques have revealed important insights. developing the analytical toolkit to adequately monitor interconnectedness and contagion requires granular datasets, and the ability to map and link data across entities and markets. the sub - prime crisis in the us banking sector spread to european banks through their direct exposures, but it also spread to insurers through the use of credit default swaps. 10 only a holistic view of the system will allow potential contagion channels to be identified and modelled. and that requires investing in new technologies for data analytics and enhancing the capacity for authorities to link and share data and technical knowledge. the second area of improvement for the macroprudential framework in europe involves keeping pace with developments in the financial system. that requires broadening the range of macroprudential instruments beyond those currently available, which focus almost exclusively on the banking sector. for the insurance sector, the contours of such instruments are taking shape. they include solvency instruments such as symmetric capital requirements for cyclical risks ; liquidity instruments for insurers with a vulnerable liquidity profile ; and instruments to target bank - like activities to ensure macroprudential policy is consistent across sectors. 11 the third area for improvement in macroprudential policy involves establishing a clearer conceptual framework to govern policy discussions and interventions. such a framework would facilitate communication with market participants and the general public, as well as help mitigate any risk of inaction bias. 2 / 4 bis central bankers'speeches for monetary policy the framework is well known and the reaction function of central banks is normally well understood by markets. by contrast, the framework that governs macroprudential policy interventions is much less developed, due in no small part to our limited experience of using these tools. the objective of financial stability is broader than the objective of price stability, so is less easily defined by a single numerical measure. developing the policy framework is challenging and will take time. the esrb approach uses the concept of residual risk, which is the difference between the level of risk and the current resilience of the financial system. 12 in setting up the framework, policymakers need to establish the level of residual risk that

period from 2000 to 2007. by contrast, the past eight years yield 120, 000 hits. despite that recognition, macroprudential policy in europe was far from operational in 2011. indeed, when the european rules establishing a common legal basis for macroprudential instruments for banking came into effect in january 2014, ten member states still had not implemented them in primary national legislation. even where national authorities had been created, there was uncertainty over the right way to assess risks, which instruments to use and how to calibrate interventions. moreover, there was a real risk of inaction bias since the costs of macroprudential policy are visible and are felt immediately, but the benefits accrue over time and are difficult to quantify. 5 given this somewhat tentative start for macroprudential policy in europe, substantial progress 1 / 4 bis central bankers'speeches has been made over the past eight years. macroprudential authorities now exist in all but one member state. the gaps in our framework and knowledge have slowly been filled through research and experience. the esrb has played an integral part in this process. 6 the framework has also helped to counter the risk of inaction bias. national macroprudential authorities have mandates and legal tools to act. at the european level, the esrb also holds a mandate to monitor risks and vulnerabilities and has a number of legal instruments at its disposal. it can, for example, issue warnings if it has identified a significant risk to financial stability, as well as recommendations setting out remedial steps to be taken on an act - or - explain basis. national authorities have certainly demonstrated their willingness to use the tools at their disposal. most eu countries currently have at least one measure in place to address risks in the residential property sector and half have measures to tackle risks in commercial real estate. 12 member states have decided to impose a positive rate on the countercyclical buffer. 7 the esrb has likewise taken action. in 2016, it issued warnings to eight countries, drawing attention to medium - term vulnerabilities in the residential real estate sectors. in six of these countries, the esrb judges that the vulnerabilities have not been sufficiently addressed and on monday published recommendations setting out remedial action to be taken. 8 five further countries were issued with warnings. 9 areas for further progress in macroprudential policy yet the overall framework for macroprudential policy in europe remains incomplete. we need progress