world financial systems have become more pro - cyclical than before. in that case, early tightening may pre - empt the possibly devastating effects of asset price volatility and loan losses once the economy starts to cool down. that might be even more relevant if credit growth is high in the early stage of the cycle. this approach has particular appeal for policy makers under the currency board as the active use of monetary measures is excluded and reserve requirements are essentially the only available monetary tool. in these circumstances, tightening prudential measures early on might seem a very reasonable thing to do. it is important to underline that in heavily bank dominated financial system, banking regulations might serve also as an instrument to affect domestic demand more directly than under other circumstances. indeed, bank of estonia increased capital adequacy ratio on more or less cyclical grounds in 1996 and tightened capital requirements further at the onset of asian contagion, before the peak of the cycle. having said that, one should not look over the possible caveats of this " macro - prudential " policy approach. one obvious shortcoming is that as financial markets do mature and financial instruments become more complex, tightening banking regulations will simply intensify financial disintermediation. in that case, major capital flows will be channeled to less regulated areas that will bring about new risks of potentially systemic nature. the second problem is that the determination of the exact stage of business cycle is simply impossible. the longer it takes, the more weight is given to the consideration whether the tightening would not emerge too late and contrary to the best intentions, would contribute to pro - cyclical behavior of banks. to be honest, we have recently thought what approach would be suitable for us to take at present and we have understood that the topic is debated also in several present eu member states. vii. conclusions after i prepared this presentation, i started even more to support the old truth in slightly modified wording – maintaining financial stability is more the art than the science. maintaining the financial stability is the mission impossible for one institution to carry out in isolation, be it the central bank or any other authority. what is needed is shared data, shared analysis that brings together macro and micro prudential aspects of financial stability, common set of principles to fall back in case of systemic crisis, and perhaps most essentially, there is a need for common mindset. i would like to highlight one essential aspect of financial stability. the pan - european consolidation of banking industry

ardo hansson : celebrating the tenth anniversary of estonia ’ s accession to nato and eu opening speech for europe day by mr ardo hansson, governor of the bank of estonia ( eesti pank ), at the seminar on the impact of the european union on estonia, eesti pank, tallinn, 9 may 2014. * * * today we are celebrating europe day. we have just passed the tenth anniversary of estonia ’ s accession to the european union, though the move towards europe had started when the country regained its independence and linked the estonian kroon to the german mark. to people in estonia, being part of europe means democracy, freedom, security and well - being. closer integration with the european union has been driven by the desire to ensure that these benefits are maintained. these core european values remain more in the background in our everyday life as we take them for granted, but events in ukraine have given a sharp reminder of their importance. accession to the eu has increased estonia ’ s influence on the world. estonia ’ s voice is heard better in europe than ever before and estonia is involved in setting the joint economic policy of europe and the euro area. this gives us the power to affect processes ourselves, and the responsibility to do our work as well as possible and to answer for the results. as the central bank of the republic of estonia and a member of the eurosystem, eesti pank has also contributed to the sustainable development and increased prosperity of the estonian economy. it is our job to ensure that companies and households can make transactions and calculations using a currency with stable purchasing power. during the time estonia has been a member of the european union, the well - being of the people of estonia has improved. eu membership has meant our economic environment has been more stable and deserving of confidence. in the past ten years, economic growth in estonia has surpassed average economic growth rates in the european union, so that estonian gdp in purchasing power terms has advanced from 55 % of the eu average in 2003 to 71 % in 2012. the incomes of residents of estonia have also increased, with real wages up more than 40 % in the past decade. eu membership has brought both opportunities and risks. it is the job of those setting national policy to make sure that risks are minimised and that we are best able to profit from opportunities and i am sure that the analysis provided here today by my colleagues will help in guiding the decisions behind that policy. the presentations we will hear today