14 And it is a long way short of being something that can guide the practical use of macroprudential policies. Summary In this speech, I have broadly illustrated some of the thoughts and reflections that macroprudential (and other) policy-makers will need to consider going forward. There are many challenging issues: some of them are new (and particular to macroprudential policy) but many of them are not, such as the need to manage the overlap between policy areas. However, we can already see system-wide risks again building in financial systems, in Sweden and internationally – so it is important that we now face these challenges head on. The first challenge will be designing effective macroprudential frameworks to ensure that the appropriate agencies are given the appropriate mandates, sufficient capability, and policy instruments to deal with threats to financial stability. Governance arrangements will play an important role. They will help to clearly define the role of macroprudential policy, to ensure that it can be used effectively, and to manage the interaction with other policy areas. While there are likely to be numerous solutions for the design of effective governance arrangements, the issues and key concerns are fairly well defined and understood. 14  The Riksbank faced several econometric problems when attempting to estimate the capital adequacy rule shown in Figure 4. For example, we used a short time series and faced an endogeneity problem (because bank lending is included on the left and right hand side of the rule).
Moving the role of ‘Chief Economist’ towards the director of the ‘Economic Department’, and letting him be more independent of any particular body member (making him responsible to the decision-making body as a whole), can help to solve this problem of information filtering. Openness is a consequence of ‘staff independence’. Allowing staff to be more independent at the same time requires the decision-making body members to take an active approach towards the analysis produced by the staff. Since a perfect understanding of the message contained in the ‘policy documents’ is a prerequisite for proper policy conduct, interaction between the decision-making body members and the staff should be assured at different levels. And finally, a need to deal with uncertainty properly arises as a consequence of the uncertainty surrounding monetary policy practice. Therefore, it is highly desirable to discuss the implied risks at different levels: (i)  First, the risks should be discussed by the staff. (ii)  Second, an evaluation of the risks should be performed interactively by the decision-making body members and the staff (alternative scenarios can be produced on the basis of these discussions). (iii)  Third, the risk and the alternative scenarios should be discussed by the decision-making body members during the policy meeting. It is clear that all the above-mentioned properties can be satisfied when either a Bank Board or a Policy Committee are making the decisions. Over the years it has been proven that both systems can work well.