They will be prime actors in the framework, not passive performers subject to a central authority, and will contribute with knowledge of national, regional and local banking markets. The intensity of centralised supervision will be the highest for those institutions deemed systemically important. But also for these institutions, close cooperation with national authorities on daily activities will remain.
In such a setting, a central bank should find it optimal to deliver the social optimal level of inflation ex ante, but it might not do so ex post.4 The timeinconsistency problem may arise because macro-prudential policy is not perfectly effective in preventing financial imbalances and it is only a pre-emptive tool, while monetary policy can pre-empt as well as correct financial imbalances.