functions, as well as adequate resources. on governance we must also take into account what is called “ political economics ”. the most efficient theoretical solution may not be achieved if it contradicts interests of power and influence. how should we structure the decision - making process in order to take account of the nexus between monetary policy and financial stability? central banks have adopted different approaches : some have a separate board for monetary policy, others also have a separate board for financial stability. most central banks have the same board for both, but may have separate deputy governors responsible for each of the two strands. what matters, as i see it, is that “ the buck stops somewhere ”. there must be a decision at some high managerial level which balances the interests of monetary policy and financial stability as well as other central bank responsibilities. the organisation and processes of the central bank must also be structured so that they facilitate the analysis preceding the decision leading to a balanced view, based on both monetary and financial stability considerations. for instance, there should be inter - departmental working groups. financial stability lies within the riksbank ’ s mandate the importance of having a well - structured framework for monitoring overarching financial system stability and identifying potential weaknesses is relatively new compared to the structures for conducting monetary policy. in sweden ( probably also in norway ), it started as a result of the banking crisis in the early 1990s. the riksbank sees system stability as being in our remit. the riksbank act states that we shall “ promote a safe and efficient payment system ” and we interpret “ payment system ” in a broad sense including not only the narrow payment infrastructure but also major banks and other institutions and markets that are necessary for the intermediation of payments. bis central bankers ’ speeches should the responsibility for financial stability rest with the central bank? yes, i think so. the supervisory agencies are structured to focus on the microprudential aspects, but the central banks are organised and staffed for macroprudential analysis, which is also needed for the conduct of monetary policy. the supervisory work needs to take the overall systemic situation into account but the macro analysis they need could well be performed elsewhere and shared with the supervisors. the next question is what kind of mandate the central bank needs for its financial stability work. this is a tricky issue. an inflation - targeted monetary policy is relatively straight - forward, but how to define “ financial stability ”? a seemingly precise definition, without matching tools, could lead to failures

the group has subsidiaries or branches. for sweden, this situation is accentuated since our banking system is four times larger than our gdp, and since our major banking groups depend on bis central bankers ’ speeches funding in international markets to a high degree. the financial stability analysis will have to expand to identify threats early on and to deal with them. we must be alert to potential contagion between unsustainable monetary and fiscal policies in other countries and their potential repercussions on the stability of our own country ’ s financial groups. – the crisis showed the need for clear roles and mandates for the authorities involved in crisis management, in particular for resolving problem banks. the riksbank, the financial supervisory authority, the national debt office and the ministry of finance had frequent contacts throughout the crisis and coordinated their actions. that said, the division of responsibilities is not clear in all situations and the riksbank has asked parliament to clarify the legislation on this and a number of other crisisrelated issues. matching goals with tools the riksbank has a fairly well - developed structure for macro - prudential analysis. but if we do identify deficiencies, how can we implement the necessary changes? winston churchill once pleaded, in a famous world war ii speech, to president roosevelt : " give us the tools, and we will finish the job! " so far, the riksbank has lacked specific “ hard ” tools for financial stability. we have relied on communication and moral suasion, hoping that our arguments will convince financial system actors to change their behaviour. our experience is mixed. before the crisis, our banks reduced their credit expansion to the baltic countries, warned by us, but they did too little and too late. one conclusion is that we must be even clearer and more forceful in our communications. the riksbank is presently analysing its tool kit with the aim of arriving at a proposal in the near future. i do not think it is necessary that the tools should be vested with the central bank. for instance, there could be a rule implying that if the central bank sends a recommendation to the supervisory authority, they must “ act or explain ”. the supervisors could then use microprudential tools such as increasing bank capital requirements for certain activities or jurisdictions or reducing the maximum level of loan - to - value ratios. as in my previous discussion on monetary policy versus regulation, i believe that monetary policy and promoting financial stability are mutually interdependent. during the recent