12 Member States have decided to impose a positive rate on the countercyclical buffer.7 The ESRB has likewise taken action. In 2016, it issued warnings to eight countries, drawing attention to medium-term vulnerabilities in the residential real estate sectors. In six of these countries, the ESRB judges that the vulnerabilities have not been sufficiently addressed and on Monday published recommendations setting out remedial action to be taken.8 Five further countries were issued with warnings.9  Areas for further progress in macroprudential policy Yet the overall framework for macroprudential policy in Europe remains incomplete. We need progress in three key areas to counter systemic risk more effectively: better analytical tools, new instruments that counter the development of risk outside the banking sector and a clearer framework to govern policy actions. The past decade has seen a sustained improvement in the tools available to assess risks to financial stability. Better data and better modelling techniques have revealed important insights. Developing the analytical toolkit to adequately monitor interconnectedness and contagion requires granular datasets, and the ability to map and link data across entities and markets. The sub-prime crisis in the US banking sector spread to European banks through their direct exposures, but it also spread to insurers through the use of credit default swaps.10 Only a holistic view of the system will allow potential contagion channels to be identified and modelled. And that requires investing in new technologies for data analytics and enhancing the capacity for authorities to link and share data and technical knowledge.
The second area of improvement for the macroprudential framework in Europe involves keeping pace with developments in the financial system. That requires broadening the range of macroprudential instruments beyond those currently available, which focus almost exclusively on the banking sector. For the insurance sector, the contours of such instruments are taking shape. They include solvency instruments such as symmetric capital requirements for cyclical risks; liquidity instruments for insurers with a vulnerable liquidity profile; and instruments to target bank-like activities to ensure macroprudential policy is consistent across sectors.11 The third area for improvement in macroprudential policy involves establishing a clearer conceptual framework to govern policy discussions and interventions. Such a framework would facilitate communication with market participants and the general public, as well as help mitigate any risk of inaction bias. 2/4  BIS central bankers' speeches  For monetary policy the framework is well known and the reaction function of central banks is normally well understood by markets. By contrast, the framework that governs macroprudential policy interventions is much less developed, due in no small part to our limited experience of using these tools. The objective of financial stability is broader than the objective of price stability, so is less easily defined by a single numerical measure. Developing the policy framework is challenging and will take time.