the recovery strengthens. all this implies that, insofar as disconnections emerge between business and financial cycles in advanced economies, monetary policy is not available to address financial stability concerns. this also applies to the euro area. in our case, however, the issue is made more acute by the fact that cyclical conditions are also diverging across countries. we have signalled clearly that our monetary policy is continuing its easing phase. our main policy rates will stay low for a prolonged period of time, as indicated by our forward guidance, and our balance sheet will keep expanding until we see a sustained adjustment in the path of inflation. managing the business cycle and ensuring price stability will be the central focus of monetary policy over the medium - term, as our mandate demands. in this environment, monetary policy needs a complement, and that complement is macroprudential policy. this is hardly a new statement, but in my view it is still not receiving sufficient international attention. developing the macroprudential toolkit is a real need for advanced economies. moreover, some key aspects of the situation we face today are yet to be fully reflected in our policy frameworks. there are two points in particular that i would like to underline. bis central bankers ’ speeches the first is that macroprudential policy must place greater emphasis on preventing large fluctuations in the financial cycle, rather than simply increasing resilience to shocks when they occur. this means making full use of instruments that can effectively restrain excessive leverage and credit growth, and deploying them in a time - varying way that is sensitive to movements in the financial cycle. in my view, this can only be achieved by broadening the toolkit available to policymakers at the european level to include borrower - based measures, which are the measures thought to have the strongest impact on credit and real estate developments. the second point is the need for this broader toolkit to also cover the shadow banking sector. the crr / crdiv legal framework covers mainly the banking sector, yet financial activity and the financing of the euro area economy have increasingly shifted to non - banks. 1 since 2009, shadow banking entities have increased their share in total assets of the financial sector from 33 % to 37 %, while credit institutions have seen their share of intermediation shrink from 55 % to 49 %. in this context, a macroprudential framework focused solely on banks will be “ blind in one eye ” – it will have only a partial perspective on

. laeven ( 2015 ), “ the use and effectiveness of macroprudential policies : new evidence ”, imf working paper 15 / 61. bis central bankers ’ speeches circumstances, given more limited legal possibilities. it also relies wholly on the foresight of the national competent authorities. the fact that borrower - based instruments do not fall under european legislation means that there is little coordination in how and when they are used across countries. this in turn means that their implementation mode varies strongly across individual countries. 11 for example, in some countries, such as here in lithuania, borrower - based measures are codified in the context of financial stability, while in others they fall under consumer protection law, as for the netherlands and latvia. the range of lending institutions covered by borrower - based measures also varies according to the national legal basis. hungary, for example, is one of the few countries where loan - to - value limits are implemented by the central bank for financial stability purposes with coverage by activity, which implies that any institution extending credit for house purchases needs to comply with the imposed ltv limit. 12 heterogeneity also extends to the competent authorities for implementing the measures. in some countries it is the central government, in others it is the central bank, and in still others authority is in the hands of a committee that involves different national bodies ( crossinstitutional committee ). this requires coordination among different types of institutions with different mandates and time horizons, and given the high political and social sensitivity of implementing borrower - based measures, can lead to an inaction bias. we see this today in several european countries. the result is that, insofar as such measures are deployed, the crucial time - varying dimension is often lost. these implementation issues have clear area - wide consequences. first, they raise the risk of regulatory leakages – be they between countries or between banks and other financial institutions, especially relevant also for the commercial real estate sector. second, they blunt the effectiveness of what is one of the key instruments to address the systemic risks for the union as a whole emanating from excessive credit flows and house price bubbles. indeed, what we confront in the euro area is a somewhat paradoxical situation where the instruments that could most effectively address the risks of a low interest rate environment are the ones governed by the weakest common framework. there is some capacity to use the current framework more effectively, but it is limited within the existing legal setup.