But one condition for macroprudential policy to work as intended is that there is a framework in place, with a clear division of responsibility and which clarifies how the various instruments should be used. One reason why monetary policy in Sweden has needed to give consideration to financial imbalances is because there has been no framework for macroprudential policy. While awaiting a permanent framework in Sweden, the Riksbank and Finansinspektionen started a joint council for cooperation on macroprudential policy at the beginning of 2012. But even if this council offers an important forum for analysis and discussion, it has no powers of decision-making and no tools of its own at its disposal. Two days ago, however, the Financial Crisis Committee produced a proposal for macroprudential policy in Sweden – which I will return to later on. Central banks should play an important role in macroprudential policy When drawing up a framework for macroprudential policy in Sweden, I think there are good reasons for giving the Riksbank a central role. One important reason is that the Riksbank has long been conducting extensive analysis of macroprudential policy issues. Ever since the Swedish bank crisis in the early 1990s, the Riksbank has gradually built up substantial knowledge and experience of analysing the risks that can threaten the stability of the financial system.
5  For a more detailed description of macroprudential policy, see for instance C. Nordh-Berntsson and J. Molin (2012), “A Swedish framework for macroprudential policy”, Economic Review, no. 1, Sveriges Riksbank, and my colleague Karolina Ekholm’s speech “Macroprudential policy and clear communication contribute to financial stability,” published on 30 March 2012. BIS central bankers’ speeches  3  focus for macroprudential policy is the risks in the financial system as a whole (see Figure 9). The supervision of individual institutions is, of course, also important to the stability of the financial system, not least as financial institutions are regarded as “systemically important”. But to capture the build-up of risks that could threaten the stability of the financial system – what are known as systemic risks – it is not enough to keep an eye on individual institutions. One needs to supplement this with a systemic, or macro, perspective. Macroprudential policy also requires appropriate tools. Let me discuss some of the macroprudential tools that could be useful to specifically manage the risks linked to house prices and household debt.6 Countercyclical capital buffers are one of the most discussed tools, and are a part of the Basel III international regulatory framework.7 The idea is to vary the capital requirements made of the banks; when there is strong credit growth, the requirements will be increased, while they will be reduced during financial stress, when there is otherwise a risk of a credit crunch.