for banks in times of liquidity distress. this asymmetric policy of only “ mopping - up ” with liquidity in financial market downturns but ignoring the risks of the upside booms creates moral hazard and provides a significant “ liquidity subsidy ” to the financial sector. the arguments against doing otherwise have been centred in the difficulty of “ identifying bubbles ” or in the danger of “ pricking bubbles ”. nevertheless the on - going debate is not anymore about “ pricking bubbles ” but concerns the inclusion of financial conditions in the optimal monetary rules as in the models developed by christiano, motto, rostagno ( 2009 ), see brunnermeier, m. and n. sannikov ( 2012 ), “ a macroeconomic model with a financial sector ”, working paper. see adrian, t. and h. s. shin ( 2010 ), “ financial intermediaries and monetary economics ”, in b. friedman and m. woodford ( eds. ), handbook of monetary economics, edition 1, volume 3, october. ; maddaloni, a. and peydro, j. - l. ( 2010 ), “ bank risk - taking, securitization, supervision and low interest rates : evidence from us and euro area lending standards ”, review of financial studies, http : / / www. ecb. europa. eu / pub / pdf / scpwps / ecbwp1248. pdf ; jimenez, g., ongena, s., peydro, j. - l. and saurina, j. ( 2012 ), “ credit supply and monetary policy : identifying the bank balance - sheet channel with loan applications ”, american economic review, http : / / www. tilburguniversity. edu / webwijs / files / center / ongena / preprints / jopscc. pdf. see borio, c., zhu, h. “ capital regulation, risk - taking and monetary policy : a missing link in the transmission mechanism? ” bis wp n. 268, december. bis central bankers ’ speeches curdia and woodford ( 2010 ) or gertler and karadi ( 2011 ) ). 17 the new models are nevertheless not mature enough and do not include all relevant financial frictions. a pure “ leaning against the wind ” policy is possible but has limitations although, in any case, monetary policy should become less asym

##rb plays a key role in developing a toolkit of macro - prudential policy instruments that national authorities can use within the european legal framework. in this context, a major policy challenge europe is currently facing is the implementation of the basel iii standards in a way that would allow authorities to use policy tools for macroprudential purposes as well. i would like to highlight in this regard that basel iii already includes some elements of a specific macro - prudential toolkit, such as the counter - cyclical capital buffer, which requires banks to build up capital buffers in periods of excessive credit growth. these buffers can then be released in stress situations, which would help institutions to avoid becoming constrained by regulatory requirements and may thus enhance their ability to maintain lending activity. however, when having a closer look at the basel iii agreement, we have to acknowledge that most elements of the new framework are traditionally considered as micro - prudential in nature. the capital and liquidity rules are designed so as to address risks at the level of individual institutions. still, depending on how these instruments are calibrated, they could, in principle, be also used to address macro - prudential concerns and mitigate systemic risks. this is a topical issue from a policy perspective in europe, given that discussions are at their final phase on the implementation of basel iii through the so called “ crd iv ”, which includes a proposal for a directive and a regulation. importantly, the regulation will introduce a new feature in financial regulation, namely that the prudential standards laid down in this legislative proposal will be directly applicable in all eu member states. you may already be aware of the concerns that have recently been raised by some authorities and member states with regard to their ability to use the policy tools falling under the regulation for macro - prudential purposes. concretely, they claim that, if capital and liquidity rules and other micro - prudential instruments are introduced as elements of a “ single rulebook ”, this would imply a “ maximum harmonisation ” of prudential requirements. consequently, member states may be legally prevented from adopting more stringent rules, even if systemic risks would justify that. i share these concerns. however, i would also like to highlight some issues that i consider as a prerequisite for the conduct of efficient macro - prudential policy in a single market. first, as regards the “ single rulebook ”, the ecb has expressed on many occasions its support