In this context, one possibility would be for the central bank to not only to determine the policy rate but also to determine the time-varying regulation, while the implementation of non-time variable regulation would be the responsibility of the supervisory authority. Does it make sense to merge the central bank with the supervisory agency? Obviously, the financial-stability analysis, and to some extent also the monetary-policy analysis, must be informed by the micro-prudential analysis, and vice versa. Countries have chosen different approaches to this, often based on country-specific characteristics such as legislation or even tradition. I am open and do not believe in a one-size-fits-all solution. The important aspects are that you ensure an open exchange of information and close cooperation between the functions, as well as adequate resources. On governance we must also take into account what is called “political economics”. The most efficient theoretical solution may not be achieved if it contradicts interests of power and influence. How should we structure the decision-making process in order to take account of the nexus between monetary policy and financial stability? Central banks have adopted different approaches: Some have a separate Board for monetary policy, others also have a separate Board for financial stability. Most central banks have the same Board for both, but may have separate Deputy Governors responsible for each of the two strands. What matters, as I see it, is that “the buck stops somewhere”.
Interest rate signals from the central banks were sometimes dwarfed by contradictory events in the markets. Conversely, financial stability is dependent on a smooth and predictable monetary policy. Hence, in the long run, the interests of monetary policy and financial stability coincide. However, in the short term we may need new tools, which are better focussed on the specific situation. To sum up: Central banks need to adapt their work processes, organisation and governance to achieve an optimal balance between monetary policy, financial stability and microprudential goals. There is not yet any internationally-agreed best practice on these issues but the debate is vivid. Everybody realises that these issues must be solved before there is another system-wide crisis. External evaluation also of financial stability work Before ending, I would like to mention the present external analysis of the Riksbank on the lessons from the financial crisis in relation to our monetary policy and financial stability work. This will reveal if we are – indeed – a useful central bank. BIS central bankers’ speeches  7  Each year, since the Riksbank was granted autonomous status in 1999, the Committee on Finance has carried out its own evaluation of monetary policy. In 2006, the Committee commissioned an external independent evaluation of Swedish monetary policy covering the period 2000–2005. In 2007, a year after the first external independent evaluation was published, the Committee on Finance decided to repeat this exercise every four years.