exposures to each other, which means that problems at one institution can spread like wildfire throughout the financial system and even between countries. with hindsight, it is easy to see that we lacked institutions and regulatory frameworks with the ability to predict and manage a global financial crisis. this lesson has led to the emergence of an entirely new policy area – macroprudential policy. focus on the financial system as a whole – and its link to the macroeconomy macroprudential policy can be seen as a complement to both traditional supervision and monetary policy when it comes to promoting financial stability ( see slide 6 ). the focus changes from supervising individual institutions to analysing systemic risks in the financial sector and the links between the different players in the financial system. macroprudential policy also aims to analyse the links, between the financial system and the macroeconomy over time. a prerequisite for macroprudential policy becoming an efficient and effective policy area is that there is a clearly defined objective for the work. we must be clear about what we want to achieve and why. otherwise there is a risk that we will see macroprudential policy as the new panacea for future crises rather than as a well - needed complement to monetary policy and micro supervision. see european commission ( 2012 ) : alert mechanism report, published on 14 february. see, for example, imf ( 2012 ) : world economic outlook, april, where it is pointed out that recessions that are preceded by a rapid increase in indebtedness tend to be both longer and more severe than other recessions. bis central bankers ’ speeches the importance of wider safety margins one way of reducing systemic risks is to increase the safety margins in the financial sector. however, the international capital flows and the interlinked financial system mean that we must reach international consensus on how this should be done. i would also like to underline the importance of having a transparent process so that investors and the market understand the thinking of the national authorities. a large part of the work to establish a safer and more robust banking sector is conducted within the framework of the basel iii regulations. an issue of the highest priority for the basel committee has been to ensure that the financial markets never again suffer such a severe case of liquidity fever as the one we saw in the initial phases of the financial crisis. the committee has therefore required the banks to hold sufficient liquidity to cope with a highly - strained market situation for

svante oberg : the swedish economy and monetary policy speech by mr svante oberg, deputy governor of the sveriges riksbank, at ohman fondkommission, stockholm, 30 may 2006. * * * “ on 27 april, i and my colleagues on the executive board of the riksbank decided to hold the policy rate unchanged at 2 per cent, on 11 may the minutes of the executive board ’ s monetary policy meeting were published and on 19 may we published a description of the monetary policy framework. these events provide the basis for the speech i will give today, " began mr oberg. “ at the meeting on 27 april we agreed to hold the policy rate unchanged. this decision was based on the inflation assessments presented in the riksbank ’ s inflation report in february and the new information on economic developments received since then. underlying inflation was expected to approach 2 per cent, but to be below this figure during the forecast period. the forecast is based on the assumption of gradual increases in the policy rate, ” said mr oberg. “ however, the decision to hold the interest rate unchanged was not self - evident. some of us expressed the opinion at the meeting that there was reason to consider an increase as early as april. i was one. i would like to take this opportunity to elaborate on my reasoning. this is in the light of the document we published on 19 may regarding the monetary policy framework, ” continued mr oberg. “ the riksbank conducts what is known as flexible inflation targeting. i shall here take up three aspects of flexible inflation targeting : measures of inflation, taking consideration of developments in the real economy and taking into account financial developments, ” said mr oberg. “ monetary policy is guided by various measures of underlying inflation. there is no single measure of inflation that at each point in time indicates the proper stance of monetary policy. the riksbank can choose to disregard effects that contribute to inflation deviating temporarily from the target. this occurs on a regular basis with regard to, for instance, indirect taxes and household mortgage interest expenditure, as well as supply shocks that are assessed as temporary. in practice, monetary policy today is mainly based on one measure of underlying inflation, und1x, ” observed mr oberg. “ the riksbank also takes into account developments in the real economy when making monetary policy decisions. in the preparatory works for the sveriges riksbank act, it was stated that the riks