is complete in all aspects in a macroprudential context and policy - makers need, therefore, to rely on a wide range of measures and tools, covering various segments of financial systems and various types of shocks and transmission mechanisms. the challenge remains one of constructing a comprehensive systemic risk surveillance and assessment system which serves as an effective early warning system. v. institutional and governance arrangements institutional and governance arrangements for ensuring financial stability is another critical issue. the overlap between macro prudential and monetary policies raises questions about the role of central banks in financial stability both in peace as well as crisis time. the broad consensus which has emerged is that central banks must be involved in the formulation and execution of financial stability policy, exclusively or as part of a collegial arrangement. much work has been undertaken over the last two years on the design of financial stability policy and related governance arrangements in some of the world ’ s major jurisdictions. abstracting from details, the amendments to the regulatory and oversight architecture made in different jurisdictions have, inter alia, • designated the central bank as the systemic regulator with accountability ; • placed central banks in charge of micro prudential regulation, where not already so responsible, in addition to macro prudential regulation, especially with respect to systemically important financial institutions ; • set up financial stability councils / commissions to provide high level focus on financial stability. let me recapitulate some of these changes. the reform of supervisory arrangements in the european union ( eu ) drew largely upon the report of the de larosiere group. in the second half of 2009, the european commission presented two sets of legislative proposals that saw the creation of two new pan - european authorities for micro prudential and macro prudential supervision. for micro prudential supervision, the european system of financial supervisors ( esfs ) was established which brings together the national supervisors and three new independent supranational european supervisory authorities ( esas ) set up replacing the former european committees for the banking, securities, and insurance and occupational bis central bankers ’ speeches pensions sectors. with respect to macro prudential oversight, a european systemic risk board ( esrb ) was created and tasked with detecting risks to the financial system as a whole. though the esrb has no formal directive power, it can issue recommendations and risk warnings to ec member states, to national supervisors and to the esas, all of which will be expected to comply or else explain. in mexico, a financial stability council ( fsc

impact of macroeconomic shocks on the stability of the banking system is being assessed based on the vector autoregression ( var ) approach. thus, in the case of the reserve bank of india, the focus on financial stability from the policy perspective attempts to put in place a prudential framework aimed at strengthening the resilience of the financial sector while also ensuring that the financial sector development is designed to correspond to the level of maturity of the financial system and the needs of the real economy. simultaneously, advanced tools and techniques are being employed to put in place an effective system of macroprudential surveillance of the financial system. in discharging its function towards maintaining financial stability, the reserve bank derives considerable systemic advantage from the its roles as the monetary authority, lender of last resort, regulator of the banking and non banking system and of key financial markets – money market, government securities market, forex market and credit market. from a financial stability perspective, the above framework has proved to be a sound model as evidenced by the resilience of the indian financial system during various episodes of systemic instability in the global economy. vii. challenges – going forward it would perhaps be a truism to state that the last five years have been challenging. challenging in terms of the continuing instability which has dogged the global financial system with barely a respite. challenging in terms of the sheer breath of regulatory changes “ central banking in a balance sheet recession ”, panel remarks by mr jaime caruana, general manager of the bis, at the board of governors of the federal reserve system 2012 conference on " central banking : before, during and after the crisis ", washington, 23 – 24 march 2012. bis central bankers ’ speeches which have taken place over a relatively short span of time – changes which are far reaching, changes which encompass a wide span, changes which are historic. i strongly believe that the next five years will be equally exciting though, i hope, less stressful for the global financial system. the last few years have also been defining moments in the history of central banking. the crisis has raised questions about the functioning of central banks leading up to the crisis and has presented tough challenges in steering the global financial system out of the crisis. for central banks, just as managing the crisis was difficult, managing the recovery is going to be equally, if not more, difficult. one of the most important challenges i see in the days to come is that of exit from accommoda