greater risks to financial stability and price stability in the future. the eurosystem has applied a number of unconventional measures to maintain financial stability. these measures helped to prevent an escalation of the financial turmoil and constitute a virtually unlimited supply of liquidity to banks. but monetary policy cannot substitute for other policies and must not compensate for policy inaction in other areas. if the eurosystem funds banks that are not financially sound, and does so against inadequate collateral, it redistributes risks among national taxpayers. such implicit transfers are beyond bis central bankers ’ speeches the mandate of the euro area ’ s central banks. rescuing banks using taxpayers ’ money is something that should only be decided by national parliaments. otherwise, monetary policy would nurture the deficit bias that is inherent to a monetary union of sovereign states. in this regard, the situation of the eurosystem is fundamentally different from that of the federal reserve or that of the bank of england. moreover, extensive and protracted funding of banks by the eurosystem replaces or displaces private investors. this breeds the risk that some banks will not reform unviable business models. so far, progress in this regard has been very limited in a number of euroarea countries. and the eurosystem has also relieved stress in the sovereign bond market. however, we should not forget that market interest rates are an important signal for governments regarding the state of their finances and that they are an important incentive for reforms. of course, markets do not always get it right. they may have underestimated sovereign risks for a long time and now they are overestimating it. but past experience taught us that their signal is still the most powerful incentive we have. at any rate, i would not rely on political insight or political rules alone. after all, monetary policy must not lose sight of its primary objective : to maintain price stability in the euro area as a whole. what does this mean? let us say that monetary policy becomes too expansionary for germany, for instance. if this happens, germany has to deal with this using other, national instruments. but by the same token, we could say this : even if we are concerned about the impact on the peripheral countries, monetary policymakers must do what is necessary once upside risks for euro - area inflation increase. delivering on its primary goal of maintaining price stability is essential for safeguarding the most precious resource a central bank can command : credibility. to sum up : what we

of the member countries ’ financial cycles may be an important issue when it comes to designing these policies. the european systemic risk board was set up in late 2010 as the authority responsible for macroprudential oversight in the european union, empowered to issue warnings and recommendations in this connection under the “ act or explain ” principle. further institutional developments have since followed. thus, without going into the details of the organisation of macroprudential regulation and supervision in the euro area, the member countries are moving ahead with the creation of national macroprudential authorities, while the ecb has been assigned responsibilities in european regulation. the institutional form of the national macroprudential authorities depends on the specific characteristics of each country, although, on the recommendations of the european systemic risk board, their common feature has to be the major role played in one way or another by the central banks. challenges for the banking sector posed by changes in international regulation and supervision let me conclude by looking at the challenges for the banking sector derived from the major changes in banking regulation and supervision in the international sphere. i shall briefly describe the basic matters being discussed by the financial stability board, or, as we all call it, the fsb. in november 2008, the g20 agreed on an ambitious “ action plan ” and asked the fsb to overhaul international financial regulation, a reform which was to go to the root of the crisis and pave the way for a sounder and safer financial system allowing sustainable financing of economic growth. the task has been both extensive and intensive. a substantial portion of the reforms needed to fulfil the mandate from the g20 have already been agreed, particularly with regard to the banking industry. apart from the reform of the basel framework for banks ( commonly known as basel iii ), a basic pillar of the regulatory reform undertaken by the fsb is the new treatment of so - called “ systemic institutions ”. or, in other words, the problem posed by institutions which are too big and complex to fail, meaning the authorities have to recapitalise them with public funds when they are in distress. identifying an institution as “ systemic ” has consequences. they are subject to larger capital charges and to a stricter supervisory regime aimed at reducing the likelihood of them getting into difficulties. that said, if there is in fact a key differentiating factor to reduce the impact of the potential failure of a systemic institution, it is unquestionably the new resolution framework. this new framework encompasses ( a )