However, the task is complex and banking supervision in itself is too important to present solutions under time pressure that will not work in practice. We should therefore take the time it takes to get it right. Financial stability and monetary policy Having reviewed the additional tasks that central banks are asked to take over, a question regards the implications for the practice of monetary policy. I will hence explain in the following how the two responsibilities will complement each other. The crisis has clearly demonstrated how essential financial stability is for the effective conduct of monetary policy. Financial market developments have always been an integral part of our monetary policy considerations and have influenced the design of our non-standard measures. Nonetheless, in my view and looking forward, monetary analysis and financial market analysis should play an even greater role for the conduct of monetary policy – particularly with regard to financial imbalances and financial fragilities. Here I would see three main areas in which further work is needed to incorporate the lessons from the crisis. First, we are faced with the fact that the smooth functioning of the financial sector is key for macroeconomic outcomes and monetary policy transmission. We saw that adverse financial conditions can have strong and impairing effects on the effectiveness of monetary policy. Academia and central banks have already taken up this research agenda and  BIS central bankers’ speeches  7  macroeconomic models and monetary policy assessments are refined in that regard.
Only recently, the Fed and the Bank of Japan have announced a numerical inflation goal. The second element: central banks should be independent on legal and operational grounds. Indeed, the independence of central banks is enshrined into primary law in a number of advanced and emerging countries and has been key for a stability oriented monetary policy. For crisis management, the so-called Jackson Hole consensus 2 of the 1990s and early 2000s foresaw only a limited role for central banks. Following the logic of the consensus, monetary policy should react to financial imbalances only to the extent that they affect the inflation forecast. Yet, as asset price build-ups are often accompanied by relatively contained inflation rates, 3 “ex-ante” monetary policy reactions were considered difficult. Effectively the consensus implied that central banks would only intervene “ex-post” to counter potential deflationary risks and risks to financial stability. The dot-com bubble of the beginning of the century was an illustration of such strategy. The ECB with a special emphasis on monetary developments The ECB’s standpoint differed from the Jackson Hole consensus. We have always emphasised that focusing on money and credit developments provides for a medium- to long-term perspective. It was believed that the monetary pillar would release warning signals and hedging against the building up of financial imbalances. 4 Indeed, as of 2005, on the basis of its monetary pillar, the ECB has repeatedly warned on the observed strong credit growth and the accompanied under-pricing of risk.