may weigh on the corporate sector more heavily. however, historical patterns in the data may be poor predictors of potential future losses. how can and should monetary policy take financial stability into account? generally, monetary policy “ gets in all of the cracks ” of the economy, as jeremy stein argued. 5 however, it is a blunt tool that cannot target specific vulnerabilities. importantly, the european central bank ( ecb ) has the clear primary objective of maintaining price stability, and it thus needs to avoid conflicts of interest with other policy objectives. this does not mean, of course, that it should ignore financial stability issues. in last year ’ s strategy review, the ecb governing council thus added two important elements to its strategy to account for the implications of house price booms. first, financial stability aspects, including those related to real estate, are now regularly part of monetary policy discussions. this allows the interdependence of price and financial stability to be taken into account, where appropriate. second, the price index used to measure inflation will include the cost of owneroccupied housing. thus, house prices will directly enter monetary policy considerations. over longer horizons, including the costs of owner - occupied housing may not change inflation measures substantially. however, in periods of dynamic real estate price developments, the effect will be more significant. 6 clearly, macroprudential policy is the first line of defence against risks to financial stability. in the case of housing markets, borrower - based measures enhance the resilience of households and the “ quality ” of new lending. additionally, capital - based measures can strengthen the resilience of banks. with these buffers, banks are then better equipped to absorb losses – that strengthens their ability to lend even in the event of adverse shocks. thus, sufficient capital is a safeguard for the proper functioning of the financial system, including in stress episodes and during periods of structural change. in january 2022, german supervisors announced a package of macroprudential measures to address increasing vulnerabilities in the german financial system. 7 the countercyclical capital buffer was set at 0. 75 %, and the sectoral systemic risk buffer ( on exposures secured by residential real estate ) at 2 % of risk - weighted assets. both measures will bolster banks ’ resilience to adverse developments. as a complementary measure, the federal financial supervisory authority ( bafin ) called on lenders to closely monitor and address risks regarding new

mortgage loans. the intention is to foster prudent lending standards, especially concerning loan - to - value ratios ( ltvs ). the german financial stability committee regularly reviews all measures. the german example shows the importance of balancing the national and the supranational level 2 / 4 bis central bankers'speeches in addressing risks to financial stability. these risks often arise at the national level, and they require appropriate national action. at the same time, coordinating macroprudential policy is particularly important in europe and in the euro area because of the high degree of financial integration and the common currency. 8 vulnerabilities in countries ’ financial systems often reflect country - specific issues, including the interaction with national institutions. therefore, safeguarding financial stability is an important national responsibility. this holds particularly true in a monetary union with economies that are highly integrated, but heterogeneous along important dimensions that can significantly affect risks to financial stability. however, shocks to domestic financial systems as well as imbalances can easily spill over across national borders and can impair the transmission of monetary policy. the european macroprudential policy framework has been set up to ensure that imbalances are addressed and spillovers are taken into account. one important step in europe was the launch of the banking union in 2014. this harmonises banking supervision and regulation. but macroprudential policies also need to take potentially adverse impacts on other countries into account. strong international institutions like the european systemic risk board ( esrb ), which was established in 2010, are thus vital for monitoring and coordinating policies at the supranational level. therefore, the european level even has the power to top up certain domestic policy decisions. hence, we have the right institutional infrastructure in place, but we also need to ensure that the system is working as intended. 9 monitoring emerging risks and addressing them appropriately is key. it is essential to counter a potential inaction bias – both at the national and the supranational level. otherwise, necessary measures to safeguard the stability of financial systems will be taken too late or not at all. to ensure that macroprudential policy can work as intended, its tools have to be applied consistently across countries. let me close with a few remarks on the current economic situation. the russian war against ukraine has severe geopolitical and economic implications. so far, financial market stress has been lower than during the onset of the covid - 19 pandemic. however, the situation