and see board of governors of the federal reserve system, federal deposit insurance corporation, and office of the comptroller of the currency ( 2013 ), “ agencies issue updated leveraged lending guidance, ” joint press release, march 21. the fsoc staff with the regulatory agencies also have been assessing whether other financial institutions, such as insurance companies and pension funds, may be susceptible to a large spike in interest rates. bis central bankers ’ speeches applied to all market actors engaged in the covered activities, not just prudentially regulated firms. a frequently cited example is increased loan - to - value requirements for certain types of lending such as residential or commercial mortgages. having just recently addressed at some length the promise and limitations of such timevarying macroprudential tools, i will not repeat those views at length today. 8 i can summarize by saying that, in practice, such policies face a number of challenges, including questions about the reliability of measures to guide policy actions, which officials should make macroprudential decisions, the speed with which policies might realistically be implemented and take effect, and the appropriate calibration of policies that will be effective in damping excesses while not unnecessarily reducing well - underwritten credit flows. 9 and, as with supervisory policies, there is reason to doubt how effective they would be in circumstances where credit growth had been excessive across wide parts of the economy. as i have said previously, however, given that procyclicality is an important contributor to systemic risk, there is good reason to continue work on developing time - varying policies. i would devote particular attention to policies that can act as the rough equivalent of an increase in interest rates for particular sources of funding. such policies would be more responsive to problems that were building quickly because of certain kinds of credit, without regard to whether they were being deployed in one or many sectors of the economy. in that respect, such policies should be more effective ( and perhaps less controversial ) in slowing the buildup of excess credit than a measure directed squarely at one sector, which might be quickly met by the redirection of a reach for yield to other asset classes. one example is the countercyclical capital buffer in basel iii, which provides for an increase in the risk - weighted capital requirements of prudentially regulated banking organizations of up to 2 - 1 / 2 percentage points when “ credit growth is excessive and is leading to the buildup of system

under the auspices of the financial stability board. 15 but these kinds of changes might also make the trade - off between systemic risk and near - term growth aims a bit easier, since a financial system with more ballast will be less prone to listing in response to accommodative monetary policies directed at the dual mandate goals of price stability and maximum employment. were such a regime of minimum margins in place, one could also see the potential for enhancing the effectiveness of monetary policy by adding a time - varying, countercyclical component. finally, it may also be worth considering some refinements to our monetary policy tools. central banks must always be cognizant of important changes that may result in different responses of households, firms, and financial markets to monetary policy actions. there is little doubt that the conduct of monetary policy has become a good deal more complicated in recent years. some of these complications may diminish as economic and financial conditions normalize, but others may be more persistent. central banks, in turn, may want to build on some recent experience, adapted for more normal times, in addressing the desire to contain systemic risk without removing monetary policy accommodation to advance one or both dual mandate goals. one example would be altering the composition of a central bank ’ s balance sheet so as to add a second policy instrument to changes in the targeted interest rate. the central bank might under some conditions want to use a combination of the two instruments to respond to concurrent concerns about macroeconomic sluggishness and excessive maturity transformation by lowering the target ( short - term ) interest rate and simultaneously flattening the yield curve through swapping shorter duration assets for longer - term ones. conclusion in reviewing the relationship between financial stability considerations and monetary policy, i have suggested that monetary policy action cannot be taken off the table as a response to the build - up of broad and sustained systemic risk. but i have also tried to suggest that the development of existing supervisory tools, the judicious use of macroprudential measures, the adoption of some structural measures affecting certain forms of financing, and perhaps some refinements of monetary policy tools can together reduce the number of occasions on see moritz schularick and alan m. taylor ( 2012 ), “ credit booms gone bust : monetary policy, leverage cycles, and financial crises, 1870 – 2008, “ american economic review, vol. 102 ( 2 ), pp 1029 – 61. see financial stability board ( 2012 ), consultative document :