particularly suited to addressing a systemic crisis. as it will be revised by june 2018, we will have to closely monitor its implementation and identify any areas where adjustments and fine - tuning will be needed. while we may need tools for failing banks, our primary aim as supervisors is the prevention of bank failure, in order to foster financial stability and ensure that depositors remain protected. as john vickers ( 2016 ) recently highlighted “ orderly bank failure is better than disorderly failure, but it ’ s best not to fail in the first place … regulators … are adding usefully to the supply of fire extinguishers. with more fire extinguishers the average damage from a fire is materially reduced. but that is no good reason to economise on fire prevention ”. c. central banks and macro - prudential policy now let me turn to the issue of crisis prevention. the challenges facing eu financial sectors in recent years have significantly increased the responsibilities of central banks in the area of crisis prevention. mandates have been amended to explicitly refer to financial stability – typically defined as avoiding rapid credit growth combined with increases in asset prices beyond those justified by the economic fundamentals – as a core central bank task. the toolbox for providing financial stability has been expanded to include macro - prudential policy tools and enhanced micro - prudential policy tools for both the national authorities and the ssm. examples of macro - prudential tools include : a countercyclical capital buffer, a systemic risk buffer and the other systemically important institutions buffer along with measures to control, inter alia, leverage, liquidity and large exposures. in the past, it was not thought to be necessary to separate monetary policy from the task of providing financial stability. it was thought that price stability in the market for goods and services would be sufficient to ensure financial stability in the market for assets. the experience since the early - 2000s has dispelled such beliefs. that experience has shown that the business cycle and the financial cycle are not necessarily synchronized ; long periods of bis central bankers ’ speeches disconnect between the two cycles can materialize. in particular, the financial cycle tends to have larger amplitude and lower frequency than the normal business cycle. macro - prudential policy bridges the gap between the micro - prudential supervision of individual banks and monetary policy. its objectives are, first, to enhance the resilience of financial institutions and the entire financial system, and, second, to smooth the financial

yannis stournaras : financial stability in europe and how to improve it speech by mr yannis stournaras, governor of the bank of greece, at the croatian national bank “ financial stability and policy intervention by central banks in europe – where do we stand and what challenges lie ahead ”, zagreb, 23 march 2016. * * * before i begin my presentation, please allow me to dedicate the following remarks to the late vassiliki zakka, who was an exceptional colleague at the bank of greece and a dear friend. before passing away unexpectedly several weeks ago, vasso had contributed to the drafting of this speech. she will be badly missed. ladies and gentlemen, it is a great pleasure to be in zagreb today and to have the opportunity to share with you some thoughts on financial stability in europe and, in particular, how to improve it. financial stability is a critical condition for achieving our common goals of prosperity and sustainable growth. yet, the financial landscape on which both regulators and market participants operate, has been rapidly changing ; it is very different today from what it was only ten years ago, and it will be very different ten years from now. i will begin by describing the present landscape on which efforts to strengthen financial stability have been taking place. then, i will briefly discuss some developments in the eu regulatory framework relevant to the financial system and its stability. in particular, we can identify a new role for central banks in this framework that stems from mandates that have been revised to include the safeguarding of financial stability. i conclude by outlining the challenges ahead and i provide some thoughts on the way forward. a. the setting – a broader context beginning with the initial efforts to forge closer european integration in the early - 1950s, the european union has faced a series of challenges that have, at times, tested both the coherence and the stability of the union. the responses to these challenges have shown that the eu is built on solid ground as the bonds among member states have become stronger over time. to cite two notable examples : the breakdown of the bretton woods system in the early - 1970s led to the creation of the european monetary system – or ems – in the late1970s ; the breakdown of the ems in the early - 1990s led to the creation of the euro in 1999. developments since the eruption of the 2007 – 08 international financial crisis have further strengthened the bonds among eu members. that crisis raised issues related to “ too - big - tofa