stability role ( sections 1a and 68 of the act ) are focussed on “ promoting the maintenance of a sound and efficient financial system ”. the bank is also required to have regard to any statement of government policy on the bank ’ s functions issued by the minister ( section 68b ). the objectives and policy guidance for macro - prudential are consistent with this but more specific. the current mou objective is : “ to increase the resilience of the domestic financial system and counter instability in the domestic financial system arising from credit, asset price or liquidity shocks. ” guiding principles for macro - prudential in the mou include the principle of supporting monetary policy where possible and being fully consistent with micro prudential policy. the objective and guidance from the mou should be lifted into the act and potentially enhanced, for example with the principle that macro - prudential policies should be applied uniformly across all banks. further elements of the governance regime might include : a list of areas that macro - prudential policies could be applied to8, e. g. capital, loan to value ratios, debt servicing capacity ; and potentially a pta - like document that would express operational objectives agreed from time to time with the government of the day. i expect the technical details of the macro - prudential instruments would continue to be set out in the banking supervision handbook. the specific characteristics of macro - prudential that i have mentioned the common ground with micro - prudential policy and its stabilisation role point to the macro - prudential mandate remaining with the reserve bank. there are significant synergies across the micro and macroprudential functions, and the stabilisation aspect requires a macro - analysis capability and degree of coordination with monetary policy. the imf in its 2017 fsap report underlines this point and supports the reserve bank having responsibility for macro - prudential – but with full accountability. they point out that shared responsibility models, where macro - prudential decisions are made jointly by councils ( e. g. made up of the ministry of finance, central bank and regulatory agencies ), often suffer from inaction bias. 5 / 7 bis central bankers'speeches an important further aspect of governance is decision - making. given the planned introduction of a new decision making committee ( mpc ) for monetary policy, the review should consider establishing a financial policy committee ( fpc ) for decisions relating to both micro and macro prudential policy.

such a downturn. overall, i believe the lvr policy is regarded as a qualified success. while it has its critics, it has also won considerable support amongst policy makers, the public and the banks. the banks have recognised the benefit of an external industry constraint that prevents an escalation of mortgage risk as banks compete for market share through greater risk taking. i take five broad lessons from the experience with macro - prudential policy to date. first, it is a policy that can reliably improve banking system resilience, on a sustained basis, but that has limited capacity to influence asset prices. the latter should not surprise us given the wide range of factors that influence asset prices more generally. second, and arising from the first, macro - prudential policy should always have a prudential purpose, and be modest in its ambition. it should not seek to control housing or financial cycles. it should seek to build resilience to these cycles while at the same time lean against the extremities of those cycles. third, to improve transparency and understanding, macro - prudential policy should have a wellunderstood and systematic framework for policy adjustments that is fully consistent with the underlying prudential framework. fourth, there is a need to build and sustain support for the macro - prudential framework – amongst politicians, the public and the banks themselves. to succeed long term, macroprudential policy must gain broad acceptance, along the lines of monetary policy. part of the challenge here is that many observers assume the main objective of macro - prudential policy is to stabilise asset price and credit growth rather than build financial system resilience. fifth, a good infrastructure is required to support macro - prudential policy. the reserve bank has invested heavily in better measurement and analysis of housing and rural credit risk. this has had positive spin - offs for prudential policy more broadly. international experience the countries we look to for lessons about our own policy are those with similar banking systems and with a propensity for housing cycles – such as australia, canada, ireland, and the uk. the latter three have been active in macro - prudential policy for several years while australia has been a more recent starter. the experience of these countries tends to reinforce the lessons i have mentioned. in ireland, the central bank sees borrower - based macro - prudential policies as an integral part of mitigating systemic risk from housing.