outcome of decades of evolution. and this reflects, and is consistent with, the long - term developments of central banks ’ mandates globally. it can be argued from a historical perspective that changes in these mandates follow common evolutionary paths which are often shaped by crises, such as the global one in 2007 / 2008. the financial stability focus that led to reassessing the importance of financial stability as a policy objective of central banks. before the 2007 / 2008 global crisis, central banks focused on price stability as their primary objective. the crisis triggered a change in the broad environment in which central banks operate 1 / 3 bis central bankers'speeches and thereby also necessitated a continued evolution of the role and governance of our institutions. concerns were raised regarding the ability of central banks to prevent and manage financial crises. this provoked a discussion of central banks ’ role in safeguarding financial stability. ultimately, there was recognition of the need to reconsider or adjust the central banks ’ responsibilities related to financial stability. a major policy response since the global crisis was the enhancement of macroprudential policy framework and the assignment of additional responsibilities to central banks in the fields of financial stability. then central banks developed tools for the practical implementation of the macroprudential framework. understanding the financial cycle the new policy framework and tools, however, can only be as good as the capability to “ diagnose ” when their application is needed. they have limited value, if any, for the purpose of safeguarding financial stability unless the macroprudential authority can detect the accumulation of cyclical systemic risk in the financial system. in other words, achieving the financial stability objective through macroprudential measures cannot be sustainable without understanding the financial cycle. that is why we have considered this to be a topical issue to devote our anniversary conference to. there is no single generally accepted theoretical basis, nor a dominant method, for measuring the financial cycle. thus the role of research becomes significant for policymaking. that is why today ’ s conference is conceived to bring together academic research and central bank practice. the conference structure reflects an understanding that the global financial cycle affects the euro area and its monetary policy, which in turn affects the financial cycle in europe beyond the euro area. therefore, the first session of the conference is on the current phase of the global financial cycle which is to a large extent driven by the us monetary policy. we recall from the 2007 / 2008 crisis how the financial disruptions originated and triggered a full - scale global crisis. the second

loans market has been hampered by the fact that a number of banks active in this market have large balance sheet exposures to sovereign debt issued in the past by countries now under stress. since the beginning of the sovereign debt crisis, these “ affected ” banks ’ supply of syndicated credit has been almost 20 % lower overall than it would have been if tensions in government bond markets had not been present. all these points illustrate well the decisive role played by the banking sector in the inception and development of the euro area crisis. this is crucial not just for our understanding of how the euro area sovereign debt crisis came to be, but also for how we ensure that we avoid its repetition. the financial and macroeconomic imbalances built up by the activities of european banks until 2007, together with the international financial crisis, were the prime movers of crisis in europe. without this, the sovereign debt crisis would not have been nearly so severe. addressing financial imbalances all this raises the question, however, as to why financial imbalances were not given more attention prior to the crisis. the limitations of the intellectual climate part of the reason is that the approach taken towards financial integration and banking activity reflected two features of the dominant economic thinking at the time. see a. alter and a. beyer, “ the dynamics of spillover effects during the european sovereign crisis ”, cfs working papers, no. 2012 / 13, 2012 ; popov, a., and n. van horen, 2013. the impact of sovereign debt exposure on bank lending : evidence from the european debt crisis. ecb mimeo. bis central bankers ’ speeches first, that the private sector was essentially stable and self - correcting, composed of fully rational agents always optimizing inter - temporally with knowledge of the future probability distributions to infinity of economic returns and variables. in such a world, no defaults were admitted or dangerous bubbles possible. only the public sector could create instability – hence, the stability and growth pact was supposed to be sufficient to ensure stability. second, that finance did not matter for real economy fluctuations. after the real business cycle school, the rational expectations hypothesis and the intertemporal optimization paradigm, money and finance were considered no longer relevant. while money crept back in the new consensual macro model through the introduction of wage and price rigidities, allowing for short - term real economy effects of monetary policy, finance continued to be invisible with the efficient market hypothesis ensuring a reliable plumbing of