The macro-prudential policy stance based on an analysis of a group of countries may differ from the policies resulting from an analysis of each country in isolation. This special feature examines how similar stand-alone macro-prudential policies would have been for a selected group of countries and compares the desired stand-alone policies to a policy derived from a portfolio analysis. The desired macro-prudential policy stances (tight, neutral or accommodating) are derived from a set of historical indicators intended to measure systemic risk, but which clearly need further refinement. The degree of similarity between the countries’ policy stances varies over time. During some time periods it is quite high. Furthermore, the analysis shows that the desired macro-prudential policy stance derived from individual country data at times broadly corresponds to the policy stance derived from aggregated data for the portfolio. In Europe the increased focus on macro-prudential policy has led to the establishment of the European Systemic Risk Board (ESRB). The ESRB will have responsibility for EU-wide macro-prudential oversight and policy recommendation. The global financial crisis has revealed important deficiencies of the standard macroeconomic models in capturing financial instabilities. Realistic characterisations of such instabilities include bank defaults, financial market illiquidity, extreme events, and related non-linearities. None of these feature in the macroeconomic models regularly used for forecasting and monetary policy analysis and only recently has more emphasis been given to better developing the role of financial sectors in these models. This gap is of particular concern given the ongoing efforts to establish serious macro-prudential oversight and regulation to counter systemic risks. The aim of this special feature is to provide an overview of the recent upsurge in research papers trying to integrate more developed financial sectors in standard macroeconomic models and to compare this work with what is needed for the support of macro-prudential policies. One conclusion is that very significant further research efforts are needed, including attempts using modelling approaches that deviate from the currently dominating macroeconomic paradigm. It is of great importance that the academic and policy-oriented research communities join forces in working towards this objective. A host of new quantitative measures of systemic risk have recently been proposed in the academic and central banking literature. The stated purpose of these tools is to support macro-prudential oversight and inform policy decisions. This special feature surveys these measures, focusing primarily on the most recent developments that have not yet been covered in the ECB’s Financial Stability Review, and explains what can be learned from them. The strengths and weaknesses of approaches when applied in a macro-prudential context are discussed. Significant research in this area has addressed how to measure the systemic importance of specific financial intermediaries, for example by estimating the externalities they may exert on the financial system. With the rising number of different analytical measures and models it becomes increasingly important to prioritise between them and to construct a system of measures that, overall, covers all dimensions of systemic risk and how they relate to each other. Large and increasing investment exposures to government bonds have left insurers more vulnerable to changes in long-term risk-free interest rates and their levels. However, changes in risk-free interest rates affect both the asset and the liability side of insurers’ balance sheets. This box discusses the various ways in which interest rate levels and changes impact insurers, with the aim of shedding some light on whether low-risk free interest rates are good or bad for insurers. Investment risks are one of the most prominent risks that insurers and pensions funds are confronted with, and the analysis of insurers’ and pension funds’ financial asset positions is therefore an important element in financial stability analysis. From a broader financial stability perspective, it is also important to analyse the investment of insurers and pension funds, since portfolio reallocation of insurers, or the unwinding of positions, has the potential to affect financial stability by destabilising asset prices. In addition, the investment of insurers and pension funds create important financial links to, in particular, governments and banks. On 21 January, 2010, the US Administration proposed a new set of broad regulatory initiatives for the banking sector. Among these, there was support for the proposal put forward by Paul Volcker, the former Chairman of the Federal Reserve Board, which, in practice, recommends restrictions on banks’ business models. The so-called "Volcker rule" aims to prevent banks that have access to central bank and deposit insurance facilities from trading on their own account, as well as from owning and investing in hedge funds and private equity. In a way, the initiative brings back to the regulatory landscape a modified version of the Glass-Steagall restrictions on banks’ securities business. This box takes a mainly academic view and is limited to offering an overview of the main arguments and analytical results – including its limitations – surrounding the original Glass-Steagall Act in the light of the recent crisis from a European perspective. With a focus on the recent financial crisis, this box proposes an indicator that measures the degree of interlinkage between different economic sectors in the euro area. In particular, the box studies the extent to which the overall risk of banks, non-financial firms, households or other economic sectors is driven by systematic risk factors that are common to the entire economy, as is, for instance, the interest rate environment, and what is the relative contribution of an individual sector to the overall systematic risk in the economy. In response to the intensification of the financial crisis in autumn 2008, euro area governments implemented coordinated measures in support of financial sectors. These measures consisted mainly of guarantees for bank liabilities, capital injections and asset support schemes. These measures, together with the sizeable macroeconomic policy stimuli and the extensive liquidity support provided by the ECB, were successful in restoring confidence in the euro area financial system and in improving its resilience. This box describes the state of the government support measures and the progress that has been made in exiting from these measures. It should be added that the progressive intensification of market concerns about sovereign credit risks within the euro area in April and early May 2010 also put pressure on the operating environment of banks. In some countries, these developments led to an increase in government support rather than to its withdrawal. This box provides an update of the estimate of potential write-downs for the euro area banking system, applying the same methodology that was used in past issues of the FSR. After the finalisation of the December 2009 FSR, securities prices continued to rise and CDS spreads on structured credit securities continued to tighten, contributing to a lowering of the marked-to-market loss rates implied by the prices and spreads of these securities. Against this background, compared with the figures presented in the December 2009 FSR, the estimate of total potential write-downs on securities for the period from 2007 to 2010 has been reduced by €43 billion to €155 billion. Furthermore, since the write-downs on securities that had been reported by euro area banks at the time of writing exceeded the write-downs implied by prevailing market prices, it cannot be excluded that some write-backs on securities classified as "available-for-sale" or "held-for-trading" may be recorded by some banks in the period ahead. These potential write-backs could be as high as €32 billion and this would be reflected in higher profits on securities classified as "held-for-trading", or in lower reserves for securities held in the "available-for-sale" category. In both cases, it could generate capital relief for the banks who benefit. The credit market has been at the epicentre of the global financial crisis since its outbreak in summer 2007. Of great importance for euro area banks is the market for European portfolio credit risk, as it provides instruments for hedging corporate loan exposures. In this market, indicators based on market prices of standardised contracts can illustrate arbitrage opportunities, which should typically be very small if markets function normally. This box summarises how price-based indicators derived from two commonly used arbitrage strategies can provide insights into market conditions for the trading of credit portfolio risk. Concerns about the adverse consequences of the deterioration of public finances in euro area countries have driven euro area credit markets since the publication of the December 2009 FSR. This box describes potential channels for a possible spillover of sovereign credit risk to corporate financing costs. This box aims to provide an overview of economic and financial linkages between the government and financial sectors. Acknowledging that financial market stability may influence public finances, the box focuses on potential channels through which fiscal policies may support or represent a risk for financial stability. These linkages are wide-ranging and rather heterogeneous in nature; therefore, it may be useful to distinguish between several types of relationships. The capacity of households to repay their debts has been hampered by the economic downturn that took place in the course of 2008 and the first half of 2009. Indeed, with some lag with respect to the economic cycle, delinquency rates are still increasing markedly in some euro area countries, forcing banks to provision funds to cover for possible losses and, in some cases, leading to write-offs on loans on their balance sheets. Over the past decade, an increasing number of companies have engaged in the "sale and leaseback" of their property, such as office buildings or retail space. Under a sale and leaseback agreement, a company sells a property to a professional property investor and leases it back, with the aim of raising capital. In the past, companies often saw ownership of their own property as a sign of strength. However, in the last decade, the stigma attached to selling off "the family silver" lessened, and sale and leaseback activity became increasingly popular. The market was also fuelled by some prominent examples of sale and leaseback activity in Europe in recent years. During the recent crisis, the sharp rise in uncertainty following the exceptional events in the financial sector seems to have been an important feature shaping developments in the real economy.