The issuance of risk warnings, in the context of safeguarding financial stability – where the analysis is centred on the downside risks and thus on highly improbable events – differs substantially from other types of analysis focused on a central, most probable, baseline scenario (such as the one supporting monetary policy). The translation of systemic risk assessments into proposals for concrete policy actions – of a prudential or supervisory nature – is also, to a large extent, new to the central banking community. 3. What went wrong? Confronted with the question of whether central banks and international bodies with financial stability competencies saw the financial crisis coming, it would be fair to answer “Yes, to some extent”.
I’ll ask why the communications about the risks that built up were insufficient to prevent the crisis. The fourth part is a what if? What if the Risk Board had existed in the early 2000s – could the factors that led to the crisis have been identified and averted? The answer should point to some of the key advantages of (and reasons for) the EU’s new macro-prudential function. 1. The setting-up of the European Systemic Risk Board  The idea of establishing a body to monitor and assess systemic risk at European level was first mooted in the late 1990s. 2 It took over a decade and a financial crisis to implement it. Let me recall the milestones of the setting-up of the ESRB institutional framework. Following the recommendations of the de Larosière Report, in February this year, the main features of the institutional framework for macro-prudential supervision were defined by the Communication published by the European Commission on 27 May as well as the Conclusions approved by the ECOFIN Council on 9 June and by the European Council on 18 and 19 June. The European Systemic Risk Board will be responsible for the macro-prudential oversight of the financial system within the European Union. It will seek to prevent or mitigate systemic risks within the financial system, so as to avoid widespread financial distress, and it will contribute to a smooth functioning of the Internal Market and ensure a sustainable contribution of the financial sector to economic growth.