to respond to different vulnerabilities, ranging from capital measures to restrictions on debt - to - income ratios and collateral. key lessons of the analysis include that : 1. flexibility is needed in both design and calibration of macroprudential tools ; 2. no single tool can combat all property risks ; 3. tools need to be appropriate to domestic circumstances ; and 4. domestic policies are more effective for both domestic and eu financial stability if their spillovers are managed. the esrb has built a framework to assess and manage such spillovers, which should be agreed soon and be operationalised early next year. its central feature is reciprocity – eliminating regulatory arbitrage to give domestic policy greater traction. it will be member led, but, importantly, backed by esrb recommendations. compliance will be on an “ act or explain ” basis but the presumption will be that many exposure - based measures ( e. g. ltv, lti and maturity ) will be reciprocated. this is significant. the esrb has been notified of macroprudential actions 69 times this year, and 173 times since the introduction of the crr / crd in 2014. although many notices are procedural, they show the direction of travel. more countries are using macroprudential tools, creating an increasing need for a “ clearing house ” that is both comprehensive and timely. the esrb will also evaluate the ways national macroprudential authorities might apply countercyclical capital buffers against financial exposures from countries outside the eea – a tool given to the esrb under union law. that will further bolster collective resilience against the global financial cycle and spillovers from outside the union. while risks in property markets reflect national differences, other risks such as misconduct have more common determinants. bis central bankers ’ speeches in the past five years, misconduct penalties imposed on eu banks have totalled €50bn. those costs have direct implications for the real economy. at 5 % leverage, that capital could have supported €1 trillion of lending capacity. more fundamentally, repeated episodes of misconduct undercut public trust in the system. 2 the esrb ’ s work has helped catalyse sensible actions to begin the process to rebuild that trust. first, it has proposed capturing misconduct costs in stress tests to ensure banks remain resilient even under severe outcomes. the bank of england has followed this approach in its most recent stress test which included and additional £

others, and fintech companies are not the banks ’ arch - enemy : cooperation is just as conceivable, and is already being actively pursued by many banks. but at the same time, i also believe that, at the core, the banks ’ objective cannot be to swim as close as possible to the crest of the innovative wave. it must be in their interest instead to provide a competitive all - in - one package. this is naturally predicated on banks ’ boards of directors taking digitalisation seriously. however, in actual fact, i believe some banks and savings banks are not even truly aware that digitalisation even exists. and, where it is being noticed, there seems to be, in many cases, significant resistance to reform. one thing needs to be clear, however : change is irreversible and will require banks to recognise the importance of digitalisation and develop a suitable digital strategy in response in order to remain profitable. in my eyes, an important factor is to always bear in mind customers ’ individual needs in order to develop sound products with long - term added value. 3. sector supervisors : have the courage of clairvoyance let us now look at the new tasks for banking supervisors created by digitalisation. after all, digitalisation is also forcing supervisors to keep pace with new developments. this does not mean an independent regulatory framework for digital financial services – after all, our overarching objective is, and remains, financial stability. what we therefore need to do is, through regulation, cover all the relevant hazards to a reliable financial system. our regulatory framework should therefore continue to be geared to these threats and not, say, make a distinction between analogue and digital financial services. wherever risks to the stability of the financial market architecture arise, they have to be addressed by legal bis central bankers ’ speeches requirements – for instance, if a company grants loans on a commercial scale through an online platform. but, without paying attention to digital change, we cannot supervise the banking industry in a risk - appropriate manner. wherever new risks are potentially created by digitalisation, we therefore need to respond in a sensitive manner ; regulatory and supervisory practice therefore need to adapt. upheaval in the financial industry caused by, for instance, murky securitisations of mortgages or high - frequency trading, teach us that supervisors need to look at innovation and financial trends early on with a critical eye and in a forward - looking manner – there will be no getting around this in future.