##prudential instruments to mitigate systemic risk the first pillar of macroprudential policies is a simple one : more buffers, and with that i mean more risk absorbency. less simple is the discussion about what kind of buffers should be set and which policymaker should be implementing them. when considering systemic risk, a distinction between a cyclical dimension and a crosssectional dimension facilitates the selection of instruments to counter those risk characteristics. the cyclical dimension is related to possible excessive risk taking or risk aversion over the financial cycle. in contrast, the cross - sectional dimension relates to the interdependence structure of the financial system : the interconnectedness of institutions, parallel behaviour and / or common exposures that lead to the rapid spreading of risks. in the near future, operational macroprudential instruments to counter systemic risk have to be developed. to reduce the cyclical component of systemic risk, time - varying capital and liquidity requirements are at the forefront. further instruments are under consideration. to bis central bankers ’ speeches address the cross - sectional dimension of systemic risk, stricter capital surcharges as well as liquidity ratios for systemically important financial institutions are under discussion in order to increase their resilience and to stabilise their funding. with respect to our macroprudential toolkit, we can report first successes. the countercyclical capital buffer is about to be implemented as the first truly macroprudential instrument. it is at the disposal of the national supervisory authorities in order to dampen excessive credit growth in their jurisdiction. a credit boom is often closely connected to the build - up of system - wide risks. little attention has so far been paid to a novelty feature of the buffer, which can be considered as one of the major improvements of basel iii : reciprocity. this means, for instance, if germany were to set a buffer of 1 % on exposures against domestic borrowers, other jurisdictions would have to impose the same buffer on their banks for cross - border claims against german borrowers. the countercyclical buffer is therefore related to the origin of the exposures instead of the origin of the bank. this principle is essential in order to avoid regulatory arbitrage and to counter effectively the build - up of risks in a specific region or sector. strengthening the regulatory framework by ensuring market functioning and market discipline let me now turn to the second pillar. strengthening the regulatory framework – this is more a question

instruments, the german supervisor bafin is the appropriate body. tight coordination between macro - and microprudential policies as well as between the participating institutions needs to be ensured. this should also extend to the ministry of finance as it has the ultimate responsibility for financial policy and is the representative of the taxpayer. macroprudential authorities need to ensure transparency and clear communication of decisions and decision - making processes. transparency and communication in terms of policy strategy, risk assessment and the use of instruments are indispensable in order to make macroprudential policies comprehensible to financial market participants and the general public. systemic risk does not respect national borders. therefore, it is in our best interests to coordinate our actions in order to mitigate systemic risk internationally. the establishment of the european systemic risk board – esrb in short – is the european answer to this international challenge. the task of the esrb is to assess systemic risk, to issue recommendations – and, should the situation worsen – to issue warnings across europe. recently, the scope of the esrb has even broadened : it will assume a coordinating role for macroprudential policies and guard against protectionism in the regulatory framework. in its work, the esrb should draw on the substantial expertise and analytical capabilities of its members to fulfill its mandate. it is my strong belief that national authorities possess the greatest expertise in the analysis of macroprudential risks. according to the principle of subsidiarity, and because the costs of a crisis are borne on a national level, eu member states need the appropriate authority for macroprudential interventions and the calibration of instruments. now, the eu member states must get their macroprudential policies to work. today ’ s challenges call for a macroprudential policy which is alert and capable. conclusion let me conclude with a very brief outlook. at the current stage, good macroprudential regulation is more about basics such as defining properly the objective, compiling the efficient toolkit and setting up the competent institutions. one day, this part of the job will be done. then, we will enter a new stage in which good macroprudential policy is more related to conduct and to daily routine. from then on, the foreseeable challenges will more or less correspond to the five famous principles of better bis central bankers ’ speeches regulation, that is : being proportionate, accountable, consistent, transparent and targeted. i am confident that, in the near