But in general one can say that it is not so much about inventing new tools, as it is about using traditional supervision tools in a new way – they will be more specifically aimed at signs of exaggerated credit expansion and indebtedness in the economy at large, at the systemic level. What are these tools in more concrete terms? What does a regulation lever consist of? I have already mentioned the possibility to vary amortisation requirements for mortgages. Another example is the countercyclical capital requirement for banks proposed in Basel III. The idea is that the capital requirement will increase if credit growth increases in relation to GDP. This entails a higher lending cost when credit growth is high, and also increases the banks’ resilience. A further example is a ceiling on loan-to-value ratios similar to the mortgage ceiling recently introduced by Finansinspektionen (the Swedish Financial Supervisory Authority). This kind of ceiling creates incentives for households to acquire a buffer that reduces the risk of their balance sheets being weakened if property prices fall. Regulation of the loan-to-value ratio could also contribute to slowing down lending and house price increases and thus counteracting a housing bubble. …but traditional supervision is still important But while the discussion now mainly concerns macroprudential tools, it is important that we remember to keep improving the more micro-oriented, traditional bank supervision. Just because it proved insufficient to prevent the financial crisis does not mean that it is unimportant.
But let me state very clearly that the euro area is not a closed club. It is open to any EU Member State that fulfils the convergence criteria on a sustainable basis. IV. Conclusion  The Baltic experience demonstrates that euro membership is not just about economics. The economics alone make only for a partial analysis of the failure or success of an adjustment  BIS central bankers’ speeches  3  programme. The political motivations – such as the determination to join the euro area or to safeguard the political capital invested in EMU – have often been underestimated by markets during the crisis. I firmly believe that both economic and political arguments will ultimately also prevail in countries currently in the middle of an adjustment process that is similarly painful to Latvia’s experience. Thank you very much for your attention. 4  BIS central bankers’ speeches