pursuing low and stable inflation and contributing to maximum sustainable employment, without creating undue volatility in output, interest rates and the exchange rate ; maximising financial system soundness while supporting efficiency, competition, innovation, and inclusion ; promoting certainty of cash availability while promoting technology innovation in payments and settlement systems ; ensuring robust payment and settlement systems, while encouraging competition ; and being the liquidity provider in extreme financial market events while minimising moral hazard in market behaviour and operating prudently with the bank ’ s balance sheet. these trade - offs have always existed in economic practice, but they have varied in their definitions, importance, and presence in the reserve bank ’ s legislation, and societies expectations. our task is to build a consistent, coherent, and transparent approach to managing and explaining these objectives, trade - offs, and our risk appetite across all aspects of our work. figure 1 our purpose, vision and values 1 our context let me set out the hierarchy of our objectives which form the basis of many of the trade - offs we need to consider. at the top of the pyramid, the reserve bank is given authority to carry out a broad set of tasks via its legislation. the rbnz act 20212, which came into effect in the middle of 2022, replaced our previous legislation from 1989. this new legislation sets out our purpose of ’ promoting the prosperity and wellbeing of all new zealanders and contributing to a sustainable and productive economy ’. as outlined in the relevant cabinet papers3, this purpose is an explicit recognition that central bank functions are not ends in themselves, but contribute towards much broader policy and societal goals. we pursue our purpose through our statutory objectives, i. e. price stability, financial stability and providing the functions of a central bank. underneath this legislation sit our remits from the minister of finance. while we have statutory independence from the government – meaning we have considerable operational autonomy to achieve our objectives and intended outcome – the remit documents explicitly outline what the government of the day wishes us to take into account of when pursuing our objectives. _ _ _ _ _ _ _ _ _ _ _ _ statement of intent 1 july 2022 - 30 june 2026 https : / / www. rbnz. govt. nz / hub / - / media / project / sites / rbnz / files / publications / statements - of - intent / rbnz - soi - 2022. pdf bank of new zealand act 2021 https : / / www. legislation. govt

us academics and policymakers to suggest that the sovereign debt problem in europe is mostly a banking problem, being ultimately a reflection of the insufficient capital buffers of european banks. this view is based on the reasoning that, should banks be better capitalised, they could be partially decoupled from the fiscal condition of the sovereign and thus relieve the drag of the financial sector on the sovereign signature. although i would be careful in attributing causality in this way, i concur that increasing the robustness of the financial sector is key to solving sovereign debt concerns. for this reason, the “ conventional ” economic governance debate can only be half the story. it may prevent negative feedback loops emerging via the public sector, but to prevent also their emergence in the financial sector – as we have seen in the irish case – a broader remit for governance is needed. imbalances in the euro area would not have developed in the same scale if the behaviour of the banking sectors in all countries, in core and peripheral countries, had been better supervised. some banking sectors distributed too much credit and others provided a bolton, p., and o. jeanne, “ sovereign default risk and bank fragility in financially integrated economies ”, cepr discussion paper no. 8358 bis central bankers ’ speeches significant part of the funding that then dried - out when the crisis came and the credit risk was suddenly reassessed. all this implies necessarily that effective economic governance needs also to address the financial sector, in order that imbalances, externalities and spillovers are tackled effectively. conceptually, financial supervision needs to be exercised as much as possible at the european level. it cannot be left, as presently, in the domain of exclusive national competences. the components of financial stability governance in the euro area accordingly, let me now propose what are, in my view, the key components to achieve reinforced governance in the euro area for financial stability. first : macro - prudential risk monitoring and assessment the first component is enhancing the capacity of public authorities to identify and address systemic risk at the european level, both from an analytical and an institutional perspective. prior to the crisis, the lack of an institutional mechanism to translate the financial stability analysis made by central banks and the ecb into policy actions was a major lacuna. in response, the european systemic risk board ( esrb ) has been set up to monitor and assess macro - prudential risks. given that the new framework began operating in january