Some MoUs focus primarily on supervision, whereas others involve crisis management as well. Notably, they are not legally binding and give the national authorities considerable scope for discretion. Although the emergence of these MoUs is very positive, they are no guarantee for efficient crisis management. Probably, these MoUs will work well under normal conditions. And they will also be most helpful in facilitating coordination in some financial crises. However, in a more wide-spread crisis involving a large cross-border bank, MoUs alone will probably be insufficient. Take, for example, the issue of assessments. We have in Europe in principle agreed to share each other’s views and assessments in the event of a distress scenario. However, to be able to act decisively in a crisis situation involving a large cross-border bank, you would preferably need a joint assessment between the countries involved. I don’t think it would be too speculative to think that each country in an acute situation would be prone to present an assessment that supports its national interests as part of a negotiation strategy. Arriving at a joint assessment may therefore prove difficult, and above all take valuable time away from crisis management. To be able to act efficiently in a crisis situation, it is instrumental that conflicts of interests, as far as possible, are taken care of in advance. For that you need something more than the MoUs we have seen so far.
Their joint, coordinated action stopped the dangerous spiral of financial deterioration and economic contraction in which the world economy found itself at the end of 2008 and in the first few months of 2009. However, whatever the changes in implementation, there is one main principle that remains. I refer to the belief that monetary policy – conventional or not – cannot solve the ultimate causes behind the loss in investors’ confidence or the tensions in financial or banking markets. In fact, its main role is to provide time to adopt the necessary measures to reform and/or adjust. Macroprudential policy The other area in which I see more changes for the role of central banks is in the oversight of efficiency of financial markets and their interaction with macroeconomic stability. One of the main lessons of the crisis is that price stability, without financial stability, does not guarantee macroeconomic stability. Therefore, there is an emerging consensus on the need to develop a specific new area of economic policy, with a preventive focus and the explicit objective of ensuring the stability of the financial system as a whole. This has been named “macroprudential policy” and together with monetary policy, is bound to become one of the main elements in the policy set in the foreseeable future. Macroprudential policy is articulated around two dimensions. The first one, looks at how risk is distributed in the financial system at a given point in time.