risks and how to keep them in check, we need a macroprudential framework in which various instruments can be combined to optimal effect. what is the best way of achieving this? firstly, it is essential to recognise that ensuring financial stability as a whole is generally dependent on the decisions made by a range of different bodies. these need to act together in order to ensure financial stability. to create the necessary basis for a functioning macroprudential framework, the exact institutional set - up of the regulatory authorities is of the utmost importance. first and foremost, objectives, mandates and responsibilities need to be clearly defined. in switzerland, for instance, finma – the financial market supervisory authority – is responsible for the regulation and supervision of individual banks. the snb, on the other hand, is required to contribute to financial stability. with regard to switzerland ’ s two big banks, there is a clear overlap between institutional and systemic risks. in this context, an exact definition of the responsibilities of the snb and finma is of central importance for optimal macroprudential supervision and regulation. the revised memorandum of understanding between the snb and finma is an important step in this direction. secondly, to ensure that the institutions involved can optimally carry out the roles assigned to them, it is also important to give them the right tools. in concrete terms, this means that the snb would, for example, need to have more extensive information about the stability of financial institutions – regarding their risk exposure, interdependences, etc. – or it would require specific instruments enabling it to take the right decisions when implementing macroprudential policy. thirdly, the crisis made it clear that closer international cooperation between regulatory authorities is vital. functioning international coordination mechanisms are required to counter future crises earlier and more effectively. international cooperation is the only way to check undesirable developments on the globalised financial markets. conclusion ladies and gentlemen, the stable economic growth and low inflation of the last two decades could not prevent the emergence of vast imbalances in the global financial system, as the financial and economic crisis clearly showed. such massive economic shocks are bound to have an impact on how central banks work. nevertheless, ensuring price stability remains our top priority. the crisis made it evident that central banks have an effective set of instruments that can be used to mitigate the negative impact of financial crises. the unconventional measures used in this regard also proved to be effective. yet despite these measures, the cost of

the set of monetary policy instruments is unsuitable for excluding all imbalances in all circumstances. accordingly, instruments that have a direct effect are needed to counter the emergence of ( global ) financial instabilities. a key lesson of the crisis is that there is scope to strengthen what is known as macroprudential supervision and regulation. this should be seen as complementary to monetary policy, to aid attainment of the twin goals of price stability and financial stability. allow me to explain this in more detail. a framework for macroprudential supervision and regulation put simply, macroprudential supervision and regulation is concerned with the stability of the entire financial system, rather than that of individual institutions, which is the domain of microprudential supervision and regulation. macroprudential supervision and regulation involves examining systemic risks that arise from the interaction between individual banks or the risk that the default of a single bank – because of its size or market share – could jeopardise certain functions that are vital for the economy, such as payment transactions or lending business. for example, one solution that could significantly reduce such problems would be progressive capital adequacy requirements. in other words, the greater a bank ’ s systemic importance, the more equity it would be required to hold. if capital adequacy requirements rise in step with systemic importance, banks have an incentive to stay smaller and thus less systemically important. capital reserves for systemically important banks in excess of a minimum level could also act as a kind of “ automatic stabiliser ”. reserves built up in “ good times ” allow banks to absorb losses in “ bad times ” without having to cease normal business operations. another central aspect of macroprudential supervision and regulation takes account of the build - up of systemic risks over time, and especially the procyclical effects in the financial sector. discretionary action could be taken to cushion the growth of such risks over time – for instance, by imposing an obligation to build up additional capital in phases of excessive credit growth, in other words a countercyclical capital buffer. a key aspect here is that such measures help prevent possible imbalances within the financial system. another way of achieving the required countercyclical effect is, for example, imposing direct restrictions on loan - to - value ratios if there are signs that a bubble could be forming in certain markets, such as the mortgage market. the difficulties of applying macroprudential supervision and regulation should not be underest