early warning indicators and models. the most effective tools for dampening credit cycles seem to be the so - called borrowerbased instruments, such as caps on borrowers´ loan - to - value ( ltv ), loan - to - income ( lti ) and debt - service - to - income ( dsti ) ratios. fixed caps on these ratios, applied in many countries, are certainly useful. but ideally, the macroprudential authorities should have powers to adjust these ratios, if necessary, in a counter - cyclical fashion. of course, that will be challenging : a discretionary use of borrower - based instruments is politically highly sensitive, which may lead to an inaction bias. high - quality analysis and research can help the policy - maker to overcome this bias : politically sensitive decisions can only be based on sound indicator - and model - based macroprudential analysis. the more confident the policy - makers are on the quality of analyses, the easier it is for them to decide ( i ) when to deploy macroprudential tools, ( ii ) which tools to use and ( ii ) how to calibrate them. high - quality analysis and research will also help policy - makers to assess the impact of different macroprudential measures on lending, asset prices and economic activity. for a similar view, see e. g. blanchard ( 2015 ) ten takeaways from the “ rethinking macro policy : progress or confusion? ” http : / / www. voxeu. org / article / rethinking - macroeconomic - policy - introduction. bis central bankers ’ speeches macroprudential policies in the euro area [ slide 7 ] let me now briefly discuss macroprudential policies in the euro area, where the macroprudential framework is special with complementary roles for national macroprudential authorities and the ecb. in this environment, there are also special needs for macroprudential analysis and research. in the euro area, as elsewhere, national authorities bear the main responsibility for national macroprudential policies. they are always in the best position to detect country - specific systemic risks and to take appropriate measures to address them. these national policies are organized differently in different countries. in finland, for example, the designated macroprudential authority is the financial supervisor, the fin - fsa. in many euro area countries, however, the national macroprudential authority is the central bank or a council of

some recent studies suggest that excessively large banking sectors can be associated not only with lower economic growth but also with higher systemic risk. 4 in addition, excessive reliance of european sme´s on bank finance has been one of the reasons for the european commission to launch its plan for the european capital markets union. but, as asked by jaime caruana in his recent speech, “ is a market - driven boom more or less risky than a bank - driven boom? ” 5 we do not know for sure, but we should try to find out. second, banking - like activities are again shifting to the so called shadow banking sector, and thereby potentially outside the perimeter of regulatory rules. this may imply new threats to financial stability, with which macroprudential policy may have to have tools to deal. the third issue which deserves close attention is the effects of digitalization on banking, which are likely to be wide - ranging. i believe we have some understanding of the potential benefits of digitalization, but we need to know more about the risks. iv. conclusions [ slide 9 ] let me conclude. a better understanding of systemic risks – to which this conference also contributes – can help policy - makers in designing better regulation and in conducting timely and effective macroprudential policy more generally. with regard to the more static form of regulatory rules, research could guide regulators to find a right balance between simplicity and comprehensiveness. with regard to macroprudential policy which requires discretionary decisions, reliable analysis and research can help policy - makers to avoid the pitfalls of excessive passivity. however, we should remain humble. to complement quantitative analysis, we continue to need sound expert judgment. weak signals of risks and potential crises have to be given due consideration. grass root level experts and their experience should be valued, and they should be encouraged to speak out. what is particularly needed is expert ability to imagine unlikely but possible scenarios which present big threats to financial stability. perhaps more human resources should be allocated to conduct such thought experiments on a regular basis. the results of such experiments should be regularly exposed to a discussion by top management to avoid the dangers of group thinking. i thank you for your attention! see eg. langfield and pagano ( 2015 ) bank bias in europe : effects on systemic risk and growth. ecb working paper, no. 1797. jaime caruana ( 2014 ) macroprudential policy : opportunities and challenges. abu dhabi, 9 december 2014. bis central bankers ’