the financial stability risks stemming form lending in foreign currencies and the substantial build - up of currency mismatches in private sector balance sheets. bis central bankers ’ speeches moreover, the basel iii framework, which has recently been released, sets stricter capital and liquidity rules than those that presently exist. the new rules will encourage banks to rely more on deposit - taking, thereby rendering the banking industry of the region more stable. however, the new rules may also lead to slower credit growth, since commercial banks may have to tighten their lending practices. the basel iii framework may, therefore, affect the dynamics of the macroeconomy as well as the channels of credit that support economic activity. issues related to the role of the banking system in the region will be addressed by fellow central bank governors in session iv of the conference, which i will be honored to chair. before concluding, i would like to touch briefly on the role of the ecb and the eurosystem in the crisis. the governing council of the ecb has moved quickly and forcibly to adapt the ecb ’ s tools of monetary policy to the challenges of the crisis, most importantly by protecting euro area banks against liquidity shortfalls. we provided liquidity in unlimited volumes and with longer maturities to banks at an early stage. in parallel, we reduced the interest rate at which the banks can borrow from the eurosystem to a historical low of 1 %. we also launched a programme to purchase euro - denominated “ covered ” bonds issued in the euro area. as a result, concerns that a credit crunch might emerge have not been realised. moreover, confronted with a serious malfunctioning of the market for sovereign debt last spring, the governing council of the ecb intervened in that market. this intervention was meant to ensure a smoother transmission of monetary policy in all euro - area economies. it is now a great pleasure for me to welcome our keynote speaker, mr. erik berglof, chief economist of the ebrd. bis central bankers ’ speeches

capital requirements regulation ( crr ) and directive ( crd iv ) play a prominent role in setting the prudential standards in the eu. implementation is ongoing and expected to be completed by 2019. from january 2016, the countercyclical capital buffer ( ccb ), the systemic risk buffer ( srb ) and the other systemically important institutions ( osii ) buffer, three important macro - prudential tools, have been operational. however, given the need to diversify the available tools beyond regulations based on capital, tools based on liquidity, leverage and funding sources are also being introduced. with regard to the borrower ’ s side, instruments such as the loan - to - value ( ltv ), loan - toincome ( lti ) and debt - service - to - income ( dsti ) limits are considered to be among the most effective macro - prudential instruments in curtailing excessive credit growth and the build - up of unsustainable debt positions. in order to effectively moderate the financial cycle, a timevarying dimension is crucial in the design of the various ratios. for example, the loan - tovalue ratio should be lowered during the expansionary phase of a financial cycle and raised during the contractionary phase, while respecting the mandate of financial stability and avoiding the build - up of systemic risk. otherwise, there is a risk of pro - cyclicality since leverage constraints decline as asset prices rise. it is imperative, however, that the macro - prudential toolbox be further enhanced with innovative tools beyond those outlined above. cyclical systemic risk can arise not only as a result of excessive credit expansion ( an issue that can be addressed with the countercyclical capital buffer along with limits on borrowing ) but also because of inadequate channeling of credit that keeps the real economy under - financed for extended periods. a lesson drawn from the crisis is that we have focused on rather narrow areas of financial activity. nowadays, it is important that we focus on the risks that might have been missed such as the interlinkages between sectors, and thus explore how the financial system can influence, and be influenced, by the wider economy. in the euro area, there is evidence of limited financing of the real economy, with the consequence that euro - area investment has not recovered to pre - 2008 levels despite ecb policies directly aimed at increasing the lending of the banking sector. bis central bankers ’ speeches c. challenges ahead and the way forward challenges