is a need to incorporate new instruments, principally with a macroprudential approach. however, in the case of some of these instruments – specifically, the use of regulation for countercyclical purposes – evidence is scarce and debate as yet inconclusive. however, beyond the contribution that a central bank can make, financial stability requires a comprehensive framework of financial institutions, policies and practices. the solidity of this framework and its consistency are crucial. regulation and supervision, whether or not in the hands of the central bank, are critical, but so too are monetary and fiscal policy. the recent sovereign debt crisis in europe, for example, has demonstrated the importance of fiscal conditions for financial stability. market discipline and institutions ’ management, although discredited by the crisis, are factors that can, with an appropriate regulatory framework and incentives, contribute to stability. the efficiency of regulation and supervision should, in the end, be reflected in good behavior by institutions and the proper functioning of markets. discussion as to the institutional arrangements that are most appropriate from the point of view of financial stability remains open. one key question is who should be responsible for the tasks of prudential regulation. another, although perhaps slightly less important, is who should do the supervision. there are arguments in favor of different policy options, but any specific recommendation must take into account the experience and circumstances of each country. until the crisis, the prevailing trend was for a body different from the central bank to be responsible for regulation and supervision whereas now the wind seems to be blowing in the opposite direction. in this context, one piece of practical advice is not to significantly change something that has worked well. in any case, the decisions that are taken may have significant implications for central banks ’ institutional insertion, the scrutiny to which they are subject, and internal organization of their activities. these implications become particularly important if it is decided to give the central bank broad responsibility for financial stability. in this case, it may be advisable to adjust internal governance so as to ensure the necessary separation of the objectives of financial stability and price stability. under any institutional model, coordination and communication between the different authorities with functions related to financial stability will always be very necessary. even under a model that assigns all the relevant functions to the central bank, coordination and communication between it and the government will still be essential because it is the fiscal authority that is responsible for the use of public resources. in a globalized world, it is, moreover, necessary to develop mechanisms

enrique marshall : central banks ’ contribution to financial stability – the experience of chile speech by mr enrique marshall, board member of the central bank of chile, at the central bank of bolivia ’ s first financial workshop “ macroregulation and financial stability ”, la paz, 29 september 2010. * * * i am indebted to kevin cowan and jorge cayazzo for their valuable comments on an earlier version of this presentation but the opinions expressed here are the exclusive responsibility of the author. 1. introduction financial stability has been a concern for central banks since their very origins. the functions for which they were created – to regulate money and credit markets and to serve as lenders of last resort – have a direct bearing on the objective of financial stability and this relationship has been further reinforced by the fact that many central banks have also undertaken a role in regulating and supervising the banking system. both the economic literature and historical experience provide sound grounds for this concern for stability, clearly demonstrating that the functioning of the real economy requires an efficient and stable financial system. the hardest lesson of history, however, is that financial crises have occurred time and again, with a very high cost in terms of both their fiscal impact and the associated losses of output. 1 financial stability has, as a result, emerged as a paramount objective of public policy. however, the transformation of this general intention into specific objectives and policies has been, and remains, a complex matter that often involves options or dilemmas that are not always easy to resolve. to start with, the concept of financial stability is difficult to define precisely, nor do we have a sufficiently solid analytical framework equivalent to that used to conduct monetary policy. moreover, responsibility for preserving stability is normally shared among different authorities, each with its own approach to the issue. as a result of the current global financial crisis, financial stability is very much at the center of debate, prompting an in - depth review of institutional arrangements, authorities ’ responsibilities, policies and the instruments that can be used for this purpose. in developed countries, where the crisis had its origin, financial reforms are underway in a bid to overcome the weaknesses that were detected. emerging economies, although they did not experience the same problems, must take advantage of the opportunity to review their own situation, draw lessons and advance in perfecting their financial systems. from this point of view, the exchange of opinions that is the purpose of this seminar may help in drawing up recommendations. 2. the central bank of chile and financial stability the concern