12 Having said this, it may be worth adding that monetary policy and a policy for financial stability usually go hand in hand, more or less automatically. Moreover, problems with financial stability only arise under certain limited periods. On the other hand, one may claim that the crisis and its effects show that we actually should worry about it slightly more often than we have done. If we are successful in formulating and using regulations and supervision, the central bank can receive assistance with both of the monetary policy problems I mentioned earlier. The central bank can hold the policy rate low when the economic outlook calls for this, without being afraid of risks building up through a monetary policy risk-taking channel. And if regulation and supervision can be used to prevent credit-driven bubbles arising, the central bank need not fear a balance sheet recession where monetary policy has little effect. Regulation with monetary policy motives With regard to coordinating the interest rate lever and the regulation level, I would like to return to a question I raised when I talked about balance sheet recessions. As I noted then, a fall on the property market could lead to a weak performance in the economy if households become uncertain about the future and feel they must consolidate their balance sheets. I also noted that this does not mean that the banks will experience problems that could threaten financial stability.
But at the same time, this may be a strength compared with the regulations, simply because it is difficult to “circumvent” an interest rate increase. BIS Review 164/2010  7  Another reason why monetary policy may in some cases be needed as a complement is that there will probably be quite considerable resistance to using regulation to prevent a creditdriven bubble. Banks and other financial market participants may perceive regulation to be a larger intervention than an interest rate increase, and consider it to be aimed only at them. In addition, things often look very good just as a bubble is inflating, so resistance would probably be particularly strong when measures are needed the most. The political and psychological pressure on those pulling on the regulation lever could thus be substantial. Important with a good allocation of responsibility I thereby come to an issue that is just as important as how regulations should be designed; namely, who should pull on the regulation lever and when. Lessons can be learned from monetary policy when it comes to responsibility and mandate. If an authority has a sufficient degree of independence it can more easily withstand external pressure. And if it also has clear and specific objectives, it has greater opportunity to do a good job, while at the same time it is easier for society to evaluate it.