instruments were, as i said, monetary policy and a weak rule, the old stability and growth pact. with the reforms already decided or at an advanced stage of discussion, the eu and the eurozone have adopted instruments for intervention in three important areas : banking and financial supervision, economic and budgetary policy coordination, and crisis management mechanisms and procedures. the first two reforms should improve the ability of the eu to prevent the build - up of unsustainable financial imbalances, and hence the emergence of crisis situations. the third reform will enable crises bis central bankers ’ speeches to be managed in an orderly manner by facilitating the adjustment of disequilibria. let us briefly see what is involved. the reform of the supervisory architecture. three new independent authorities have been instituted, responsible for the microprudential supervision respectively of banking, insurance and the financial markets. they began operating on 1 january of this year. their main task is to make the supervisory rules uniform in the respective sectors and to harmonize the supervisory practices of the national authorities, for the coordinated pursuit of their objectives of intermediaries ’ stability, capital adequacy and liquidity. specifically, the european banking authority will also be charged with preparing and conducting a new stress - test of european banks after the exercise conducted last july, which was severely criticized by analysts and market participants for its leniency and lack of transparency. it is absolutely essential that the new test adhere to internationally accepted standards and methods, and that markets be promptly informed of the results ; and it is necessary that any bank that fails to pass take adequate measures to strengthen its capital. alongside the microprudential supervisory authorities, a macroprudential supervisory body will operate at the ecb to monitor systemic risk. the european systemic risk board will analyse the evolution of the credit and financial aggregates to determine whether unsustainable imbalances with systemic implications are being created. the board will be empowered to recommend to the competent authorities that they take the measures necessary to prevent “ speculative bubbles ” in the financial and property markets. economic policy coordination. the changes in this area, designed by the task force under president van rompuy, envisage a significant strengthening of budget discipline through a reform of the stability and growth pact and a new mechanism of surveillance on macroeconomic disequilibria and vulnerabilities. the new stability pact will stress mediumterm fiscal sustainability and trends in the public debt, imparting operational and

mechanism is exacerbated when funds are allowed to run on a mismatch between redemption rules and the liquidity of their portfolios ; not surprisingly, open - end funds behaved more procyclically than other investors did during the march turmoil. moreover, while funds provide greater diversification for end - investors, they typically display little diversity in their own strategies within each investment class. state - of - the - art strategies are likely to be similar across many funds ; besides, as managers are compensated relative to benchmarks, they tend to replicate the investment strategies adopted by peers. the resulting herd behaviour will further amplify shocks and cause contagion. herding is, however, very much inherent in etfs and passive funds, which have been shown to increase the sensitivity of peripheral markets to global shocks. 1 finally, algorithmic and high - frequency trading, widely used by asset managers, tends to increase market efficiency during normal times, but may break down during high volatility episodes, increasing the procyclicality of prices and liquidity. 2 the bank of italy had long been advocating for international financial standard setters to tackle some of these vulnerabilities. this was largely ignored until the covid crisis made them obvious to all, when investment funds played a crucial role in market disruption and, specifically, in capital flow reversals. 3 nbfi reform is now very much on the fsb ’ s agenda. the italian presidency of the g20 has made it one of its key priorities in the finance track. while some issues are still controversial, progress has been palpable in some key areas, and i am confident that a more comprehensive approach is gradually developing. this was my first main point. my second point concerns the policy responses during the pandemic, which proved effective in dealing with large and volatile capital flows. as is well known, the actions taken by ae authorities after the outbreak of the pandemic, including the introduction of swap agreements by major central banks, contributed to improving global financial conditions ; as investors ’ risk appetite returned, emes ’ capital inflows recovered and tensions on foreign exchange ( fx ) markets eased. the point to which i would like to draw your attention is that a number of eme policy makers also played a crucial role during that episode, as shown for instance in a joint paper by the bank of england and the bank of italy. 4 to mitigate the impact of the covid - 19 shock on