Net imbalances do matter, and macroprudential policy will not solve the deep problems of the international monetary system; nor will the temporary capital controls employed by some EMEs on “macroprudential” grounds. That question is still with us because those imbalances are, broadly, still with us. And if the surplus countries do not adjust, that poses tough challenges for the rest of us. 24  See “Monetary policy and financial stability – some further challenges”, Ingves (2010). 25  Bank of England and Financial Services Authority staff. December 2011. “Instruments of macroprudential policy”  BIS central bankers’ speeches  9  Lessons for the policy framework Where does that leave us? Summing up my analysis, it is that we must use financial asset prices, in particular spreads, alongside quantities as indicators of risk taking and risk appetite. It is through credit flows – domestically and across borders – that risk is built. But it is in balance sheets that those risks are housed and come home to roost. In terms of the policy framework, this leads me to suggest the following lessons: –  We must not rely entirely on central banks “mopping up” after financial crises. Not only does it strain our capabilities ex post, it is counterproductive ex ante. If central banks are perceived as writing deep-out-of-the-money put options, then the market, believing it is protected by those tail-risk puts, will itself take more risks than otherwise. We need overall macro regimes that aim to make chronic imbalances and over-indebtedness less likely and less threatening.
Recent studies by the ECB and the European Commission have clearly shown that a lengthy period of processing the old national and the new SEPA instruments in parallel will be costly for both banks and their customers. Therefore, this period of dual processing should be kept as short as possible. Responding to the global financial market correction Financial integration is proceeding not only within Europe, but also at the global level. Financial globalisation enables the international community to share significant benefits in terms of enhanced financial efficiency and economic growth, but it also makes the safeguarding of financial stability a more interdependent endeavour. Effectively coordinated international action aimed at addressing financial system vulnerabilities has therefore become very important, as highlighted during the ongoing financial market correction. Against this background, the major collective effort undertaken by both the public and the private sector to cope with the financial market turbulences has been encouraging. Hard work has been done in terms of restoring the orderly functioning of financial markets in the short term and identifying proper measures to strengthen the resilience of the financial system in the longer term in order to avoid the recurrence of similar events in the future. The report of the Financial Stability Forum (FSF) on “Enhancing Market and Institutional Resilience” 3 has been fully endorsed by the international community and provides the main reference point for the necessary improvements.