in europe. let me stress once more that the cause to which this process is contributing – the single market – is one of making europe stronger bis central bankers ’ speeches and more attractive for national as well as cross - border investment, thus activating and sustaining growth. to conclude, i wish to thank you all very much for your participation. particular thanks go to all speakers and panellists for making the discussions so lively and thought - provoking. finally, i would like to take this opportunity to thank all those, from both the european commission and the ecb, involved in preparing this very interesting conference. bis central bankers ’ speeches

, ” if you please. first, macroeconomic stability can be achieved by monetary policy, which pursues low and stable inflation. macroeconomic stability is complementary to financial stability. second, financial stability can be achieved by pursuing a microprudential approach. to that end, the authorities need to properly regulate and supervise individual financial institutions. as a key tool, capital adequacy regulation has become increasingly sophisticated to calibrate risk involved in a specific activity. third, financial institutions with a sufficient capital position can easily raise liquidity in financial markets. thus, liquidity consideration has been assigned only an ancillary role in regulation and supervision. see financial services authority ( 2009 ). way of thinking about monetary policy management it is a good time to review the prevailing philosophy in light of the current crisis. on the first form of the pre - established harmony on macroeconomic stability, monetary policy aimed at low and stable inflation was so successful in the past two decades. oddly, such success of monetary policy also turned out to be a part of the problem. given human psychology and institutional arrangements, the unfounded expectations for the continuation of low interest rates were responsible for creating perverse incentives under benign economic conditions. such perverse incentives in turn induced the process of accumulation and manifestation of financial imbalances, thereby destabilizing the economy in the longer term. 3 the issue we are facing is sometimes inappropriately described as an intra - temporal tradeoff between price stability and financial stability. the actual trade - off here is an inter - temporal trade - off between the current and the future economic stability. lively debate on the possible role of monetary policy is going on. monetary policy alone cannot or should not stave off a bubble. indeed, it bears a more modest but important task. monetary policy should avoid accelerating a bubble through creating unfounded expectations for the continuation of low interest rates, since incentives are underpinned ultimately by the financial and economic environment at a macro level. 4 capital adequacy regulation and incentives the second form of pre - established harmony on microprudential policy also needs to be reexamined. a macroprudential perspective is definitely needed in assessing risks as well as in designing regulations. the very fundamental problem is how to stem intrinsic moral hazard due to the limited liability of stockholders. in the past 20 years, the financial regulatory and supervisory authorities have attempted to tighten capital adequacy regulation. with low leverage, however, financial institutions faced difficulty