of financial distress during the crisis of 2007 - 08. ” ecb working paper ( forthcoming ). puri, m., rochol, j., and s. steffen, 2009. “ the impact of the u. s. financial crisis on global retail lending. ” duke university working paper. given this picture, it is clear that the challenge of the day is how to strengthen financial stability without reducing long - term growth. the current academic and policy debate has already given us some guidance as to which measures could serve this purpose best. among the critical issues under consideration, i would like to mention : ( 1 ) shortening securitization chains and making them more transparent ; ( 2 ) promoting greater standardisation of the various credit risk transfer instruments ; ( 3 ) moving over - the - counter derivatives trading – in particular that of credit default swap markets – to central clearing counterparties ; ( 4 ) demanding greater transparency of the assets, liquidity and leverage of non - bank financial intermediaries ; and ( 5 ) improving frameworks for the resolution and recapitalisation of large cross - border financial groups. the ongoing reforms of supervisory and regulatory institutions, both at the european and international level, are one vital step in this direction. policy responses to increased international financial integration in response to the extraordinary global impact of the financial crisis, the g20 has forcefully taken the leadership in advancing the agenda for reforming the international regulatory and supervisory framework. in an unprecedented way, the g20 has become the global forum for international coordination and has agreed on a broad set of measures to be followed by national authorities and international standard setters. in order to further advance the process, the newly established financial stability board ( fsb ) has been entrusted with the task of overseeing concrete regulatory steps and monitoring the implementation of the reform agenda. the participation of the main international fora and institutions – the international monetary fund ( imf ), the bank of international settlements ( bis ) and the international organization of securities commissions ( iosco ) – in the fsb is also proving instrumental in ensuring cross - sectoral coordination. international coordination cannot be dispensed with when dealing with the additional layers of complexity posed by the modern integrated financial system. indeed, the decision to switch towards the enlarged composition of the g20 ( as opposed to the g7 ) and the parallel broader country representation in the fsb are themselves an acknowledgement of the forces of globalisation and financial integration. it can be safely argued

transmission of monetary policy and hence support the achievement of our mandate. in this sense, i am supportive of the “ leaning against the wind ” argument in both directions, provided instruments and objectives are consistent. we are in such a complementary environment today. at present we see no evidence that low interest rates are contributing to leverage - driven financial imbalances in the euro area. indeed, the most serious financial stability risks tend to be associated with excessive developments in bank credit, and there are no signs of that in the euro area on average today. however, were we to enter a conflicting environment, the logic of the tinbergen rule would become more apparent. on the one hand, if for example a bond bubble were emerging but inflation was still low, raising rates to combat that financial stability risk would run contrary to our price stability objective. on the other hand, if inflation were rising banks but banks in the euro area were still repairing their balance sheets, raising rates could have damaging consequences for the banking sector. given the hierarchical nature of the ecb ’ s mandate, if we were to face such conflicts, where price stability and financial stability point in different directions for the path of interest rates, we would have to put price stability first. this is our legal obligation. and from an economic point of view, in circumstances where financial stability effectively becomes a distinct objective from price stability, the tinbergen rule implies there have to be instruments other than interest rates to address it. those instruments are of course macro - prudential policies. following the introduction of crdiv we now have a wide range of new tools available to the competent authorities in the euro area and, with the creation of the ssm, a stronger framework to coordinate those tools and prevent inaction bias at the national level. should we see any indications that low interest rates are leading to financial imbalances, the first line of defence is for the competent authorities to make full use of these new but hardly tested instruments. the division of labour is clear : monetary policy should focus on price stability ; macroprudential policy on financial stability. yet i am also sympathetic to the view expressed by the bis that we need to approach macro - prudential with “ a mix of ambition and humility ” – that is, we need to be ambitious in using the new tools we have, but we also need to be humble in recognising their limitations. research is so far relatively limited about the channels through which macro - prude