institution basis is important, but it is not enough. the risk to the financial system is greater than the average risk to individual firms. managing this risk requires new system - wide tools, and here, too, there has been considerable progress. the counter - cyclical capital buffer included in basel iii is a giant step forward. the bank of canada played a leading role in the development of the buffer, which bis central bankers ’ speeches provides for additional capital to be built up during periods of excessive credit growth in anticipation of a future economic downturn. the reform agenda is now moving beyond the core. this means taking into account the considerable importance of shadow banking or market - based financing. the credit intermediation activities of banks are closely regulated and supervised, and are backstopped with deposit insurance and central bank liquidity. in contrast, market - based financing is less regulated and does not have access to public liquidity support. but it is big, and the crisis highlighted the systemic vulnerabilities market - based financing can pose. for both these reasons the international agenda is now turning to the perimeter of regulation and market - based financing. it will be essential that reforms strike an effective balance between the benefits of market - based financing in terms of competition, diversification and innovation, and the risks related to regulatory arbitrage and systemic vulnerabilities. the role of central banks this leads to the role of central banks in mitigating systemic risks. as i said at the outset, a key role for central banks is to use their panoramic view of the financial system to identify system - wide vulnerabilities. central banks are well placed to recognize risks and prioritize them within a framework that maps potential weaknesses and traces the chain of cause and effect throughout the system. but to do this effectively, we need to raise our game. we need a deeper understanding of the links between financial intermediation, money and credit flows, the balance sheets of households and businesses, and the range of available policy instruments. and this understanding needs to be combined with better detection of emerging financial imbalances. this requires engagement with the private sector and building multidisciplinary teams that bring together economists, financial experts, accountants and lawyers, among others. and it is not enough to simply draw up long lists of vulnerabilities. risks need to be assessed and ranked, providing a clear sense of priority. since the outset of the crisis, the bank of canada has intensified its

. there are, for instance, many young families who can build their own home because interest rates are very low. an expansionary monetary policy helps in the medium and long term, also because, as a result of growth, jobs are created, which in turn generate income. only that makes it possible for people to buy property or to save or invest. you approach monetary policy as a member of the ecb ’ s executive board and governing council. when will the ecb start to unwind its monetary policy? the expansionary monetary policy has both advantages and side effects. as time passes, the positive effects get weaker and the risks increase. so it ’ s important to prepare for the exit in good time. what ’ s crucial in that context is a stable trend in the rate of inflation towards our objective of just under 2 %. it ’ s not quite there yet. still, we need to address the issue : how should the return to normal monetary policy be arranged? what will be the time frame, what will be the tools and what will be the sequence? what steps are to be taken and when should we start to wind down the bond purchases? that ’ s likely to be a long process. that ’ s why we on the ecb ’ s governing council should now answer the questions i just asked. 1 a mittelstandsbank serves small and medium - sized enterprises. 3 / 3 bis central bankers'speeches