macroauthorities. prudential authorities would step in and impose ( or relax ) constraints whenever they come to the conclusion that dangerous imbalances are building up ( or unwinding ). we probably cannot dispense of this second approach. the difficulty to date cycles makes it dangerous to rely purely on automatic mechanisms, which cannot be precisely calibrated. financial cycles, in particular, are driven by changes in risk appetite which are impossible to predict. actually, one essential objective of macroprudential supervision may be to " regulate " ( not in the legal sense, but economically ) the aggregate level of risk appetite inside the financial system. this unavoidably involves some degree of discretionary judgement and intervention. combining the two components of macrosupervision ( systemic and macroeconomic ) with the two approaches ( automatic and discretionary ) produces an interesting classification, which is presented in the table below : purpose systemic risk adjustment to macroconditions mechanisms • buffers ( capital and / or liquidity ) • loan to value ratios automatic • accounting framework • stress tests discretionary • pillar ii of basel 2 • time varying ratios capital • dynamic provisioning • discretionary adjustments to capital ratios, provisions or margin requirements institutional challenges the discretionary approach to macrosupervision raises important institutional issues. first, who makes the judgment? and should that body be independent or not? there is a good case for putting central banks in charge. if one takes an historical perspective, it is striking that the mandates and missions of central banks have taken major turns following financial crises. central banks have an informational advantage ( or at least no disadvantage ) in judging the cyclical position. they have an incentive to act, because macroprudential supervision alleviates the burden on monetary policy, and because they need monetary transmission mechanisms to work. so they clearly should have a pivotal role in the process. but they are not alone in caring about financial stability. and experience has shown that price stability – their primary mandate – does not always coincide with financial stability and the avoidance of bubbles. furthermore, in an integrated financial system, judgments have to be made on a worldwide basis. another alternative is the imf. but the imf is mostly controlled by governments and decisions are made according to voting shares. implementing macrosupervision will involve delicate decisions ( like strengthening lending standards in good times ) to which governments may not spontaneously agree. a fully independent body would certainly be necessary. second, how is that judgment

crisis. we have come sa long way, but there are still challenges ahead of us for the ten years to come. yet the challenges for the financial industry are gradually changing in nature : they could shift from adapting to the regulatory or monetary policy environment to reflecting on new business model strategies. in this regard, the expected strengthening of the economic recovery will hopefully make the path smoother. austerity – or rigour – will remain necessary, but innovation will be the game changer. thank you for your attention. 4 / 9 bis central bankers'speeches slide 2 5 / 9 bis central bankers'speeches slide 3 6 / 9 bis central bankers'speeches slide 4 7 / 9 bis central bankers'speeches slide 5 8 / 9 bis central bankers'speeches slide 6 9 / 9 bis central bankers'speeches