2  BIS central bankers’ speeches  2007, I took part in a panel debate in Jackson Hole, and indicated then that it is better to attempt to prevent the risk of a financial crisis than to clean up afterwards. The main argument as I see it – now as it was then – is that cleaning up is extremely costly and takes a long time. Experiences in Sweden from the crisis of the 1990s are an example of just how painful it can be. Because, reducing major debts often takes a long time, and during that time possibilities of stimulating demand through monetary policy are limited. It doesn’t matter much if the debts are in the private sector, i.e. among households and companies, or in the public sector. In both cases, a trend build-up of debt in relation to income is always unsustainable in the long term. A question is then how central banks more tangibly can lean against the wind. The policy rate is a tool that can be used. We therefore need to develop the monetary policy framework so that it takes greater account of financial stability. At the same time, financial stability policy is changing, and a new policy area, macroprudential policy, is emerging which also aims to lean against the wind. Hence, we are facing two changes in the areas of responsibility of central banks, both of which create new possibilities to manage the trade-offs between price stability, resource utilisation and financial stability.
A major challenge ahead is the consistent and timely implementation of the Basel III framework. It is of the essence that we all adhere to the agreed timeline, ensuring that our banks have a strong capital base. Only when implemented in a consistent manner across jurisdictions will the expected significant net social benefits, including reduced volatility of credit and GDP growth as well as the lower probability of occurrence of systemic crises, be achieved. To reap the benefits of the new framework, a consistent implementation of Basel III is essential. In this context, I welcome the European Commission’s proposal on the implementation of Basel III in the EU, issued in July in the form of a fully-fledged capital requirements regulation. With this step, the EU has demonstrated its strong commitment to the rapid implementation of the Basel III agreement. As it was already said earlier in this Eurofi colloquium, great attention is presently given to this very important piece of legislation, to verify and make sure that it is fully in line with the agreements reached at global level through the Basel Committee, the FSB and the G20. I am confident that this work will be satisfactorily concluded. SIFIS Another important step taken to strengthen the resilience of the financial markets is the agreement reached on global systemically important financial institutions. A key lesson from the crisis is that incentives need to be put in place for banks to reduce their “systemic footprint”.