financial system, to issue warnings when the assessment of risks are deemed to be significant, and to suggest, when appropriate, policy recommendations. close cooperation with national eu supervisory authorities and with global institutions ( such as the imf and the financial stability board ) should help this new institution and the central banks represented on the esrb to deal with the challenges posed by increasingly interconnected national financial systems. conclusions let me conclude. the recent financial crisis has re - opened the debate on the relationship between monetary policy and asset prices. at the heart of that debate are questions like : is price stability too narrow an objective for monetary policy? should monetary policy “ lean against the wind ”, in order to avoid asset price bubbles? i would answer these questions in two ways. first, a monetary policy which has price stability as its primary objective is a necessary condition for avoiding asset price bubbles and promoting financial stability. with the benefit of hindsight, it seems that some of the financial imbalances which built up prior to the crisis resulted from monetary policies which were not fully in line with the objective of price stability. either the policies were also pursuing other goals, such as supporting economic activity and employment, or they were not focusing on the appropriate indicators of inflationary pressures, attaching, for instance, too much importance to output gaps and too little to monetary and credit developments. the first steps to take are to put monetary policy back on track – so that it focuses primarily on price stability – and to improve the underlying analytical framework. in particular, it ’ s essential to include monetary and financial variables in the information available to central banks. they can provide the signal that the monetary policy stance needs to be tighter well before the business cycle reaches its peak, in order to ensure price stability over the medium term. second, a monetary policy which is appropriate for price stability might not suffice to ensure financial stability. indeed, given that asset prices react more rapidly than other prices, they may overshoot their long term equilibrium value and have undesirable effects on the financial system. if this were to happen, should monetary policy react, even if price stability is not at risk? in other words, should interest rates be raised even if, taking into account all possible indicators, price stability is not endangered but there are risks of an asset price bubble building up? i personally think that a case has not yet been made for such a course of action. it would imply that monetary policy follows two objectives with only one instrument,

system. many of you provided input to our review of the fmi oversight regime over the last couple of years, and i thank you for that. we have taken our time in developing the framework so that it will be fit for purpose and reflect a risk - based approach to regulation. the new oversight framework, yet to be enacted, has several key features : the reserve bank and fma would have information gathering powers in order to better identify emerging risks an fmi that is assessed as being systemically important would be required to be designated under a revised designation regime the reserve bank and fma would have enhanced oversight of designated fmis, including powers to : set requirements on governance and bcp standards ; influence fmi operating rules, and play a key role in crisis management currently designated fmis would continue to be able to seek legal protection for netting and settlement under the revised regime. other new non - systemic systems would also be able to opt - in to the new regime. to assess whether an fmi is systemically important, we are using international standard criteria : the size and concentration of financial risks within the fmi ; the role and the nature of the transactions it processes ; the extent to which there are alternative services available ; and the fmi ’ s interdependencies with other fmis. our initial assessment identified nine fmis that are either systemically important or potentially of systemic importance. four of them are already designated systems : esas, nzclear, cls and nzcdc. two of the payments nz systems – sbi and hvcs – are also likely to be designated under the new framework. there are another three offshore based fmis that are on this list too, including lch, asx clear ( futures ) and singapore ’ s dtcc ( trade repository ). a key feature of the proposed new framework is crisis management. we are proposing that the reserve bank and fma would have a tools to respond if a systemically important fmi fails or is about to fail. in such a situation, we want to facilitate an orderly recovery or resolution so as to minimise potential disruptions to the financial system. while the focus will be on systemically important fmis, the proposed framework will help us monitor emerging risks in the broader industry. this would not be an “ all - or - nothing ” oversight regime. rather, it would give the bank and the fma flexibility to tailor the oversight regime in light of the risks identified. the oversight