 Well, good afternoon, everyone. So we have our last session and our panel, which we titled, What Microprudential Framework for Europe? And that's what we are going to discuss and assess from different angles. You may recall, at least the European ones in the room, that August last year, the Commission issued a consultation paper on the future of the Microprudential Framework for Europe. It was a sort of oddly timed document in August and not so much after the British referendum. But it had a view about the future of macroprudential policy. We ourselves at ECB issued a public opinion on that, not a public opinion, we reacted publicly in the written text to the consultation paper of the Commission. And there are many topics, of course, in the document. Let me just start light three or four that could be part of the discussion. But in our reaction to the Commission's paper, we highlighted that we would like to see the recognition of the competences of the ECB in the macroprudential sphere, becoming a sort of another macroprudential authority in Europe, in particular after Brexit, because indeed we have legally the powers to top up national measures in the field of macroprudential policy, which now will represent, if you just measure it by the total amount of assets in the banking sector, it's 28 trillion. And the remaining EU countries that are not members of the Euro area and the SSM perimeter represent only 3 trillion. After, of course, the UK goes out. So this, in our view, it's not fully recognized in the consultation paper. The second point is that we would like to see more European level competences in this field, particularly in connection with the CMU project, the Capital Markets Union, which justifies that more powers should be given to the European supervisory authorities, particularly ESMA, in view of that particular project, because the Banking Union and Capital Markets Union are the main drivers of financial integration in Europe. And deepening financial integration as a result of both projects implies more interconnectedness and so more risks that have to be addressed at the European level. And that's why we should have, in the other sectors, what we, more or less, have now in banking and give more powers to these European supervisory authorities. Fourth point that we highlighted is that macro-potential policy should have a little bit more instruments than the ones that are recognized now in the European legislation, because the powers, for instance, that we have to top-up measures taken at the national level refer only to the instruments that in the CRD-4 are recognized as macro-potential instruments. And that's not all the instruments that possibly can be used for macro-potential purposes. So in a nutshell, we thought that the document of the commission was not sufficiently ambitious and did not recognize fully the new environment where we were, particularly after the British referendum. But it was, of course, the first step in a discussion, and I don't know how much Sean Berrigan can tell us today about the assessment of all the reactions that they received and what they intend to do, but, of course, he knows everything because Sean Berrigan is really the encyclopedia in Brussels of macro-potential policy. He has followed everything from the start. And good to have you here. So we also see these problems of addressing the framework of macro-potential policy in Europe. Also from the angle of what national authorities are doing in certain fields, because that can also provide food for thought in what regards the type of instruments that are more effective and should, in our view, be also available to the ECB and they are not currently. So we will have then, in the panel, Fernando Restoy, who is now chair or president. I don't know exactly what is the designation, but is the head of the Financial Stability Institute at the BIS. And formally, of course, he was in the board of the Central Bank of Spain in charge of supervision and as such a member of our supervisory board in the SSM side of the ECB. Then we have Sharon Donnery, who is currently deputy governor of the Central Bank of Ireland and has been also before, alternated in the supervisory board of the SSM and is in charge of these matters and has been also chairing and coordinating the analysis by the SSM of the NPL's problem. So she is really following macro-prudential very closely. Then we have Paul Ebers, who is director of financial stability in the Central Bank of the Netherlands. So also on top as such, he is a member of the Basel Committee. He also comes to our Financial Stability Committee and then we have Sean, who is currently director of precisely financial stability. So without further ado, I give the floor to Fernando to kick off. Thank you. Thank you very much, Victor. Thank you, organizers, for inviting me to participate in this conference. I must, according to the BIS rules, I have to stress that the BIS does not form any view on a specific national policy debate and therefore what I'm going to say here is essentially my own views and not the views of the BIS. Well, I was invited actually to participate in this. Oh, I know what you meant. Which one is it? Oh, that's the one. So what I was invited to participate in this panel, I was invited as well to start my presentation by referring to the current challenges of the European banking sector and how macro-prudential policies could actually be used to address them. It was an interesting exercise. What I want to see is the current challenges, the most important current challenges for the European banking industry. I came out with topics like non-performing loans, low profitability, sustainability of business models, or potential over capacity. And frankly, those are not typically the issues which are normally addressed by macro-prudential policies. Which is good, I mean, just to put the limit for the scope of our discussion. I mean, even if we consider and improve the macro-prudential framework, there are still a number of important measures to be taken at a micro-prue level. And in fact, it's clear that right now, I mean, you don't see a need of bold action at the level of the eurozone at least in the macro-prudential field. Of course, there could be some imbalances in different jurisdictions that can be addressed by macro-prudential policies, but it's clear that there is no general need actually to be extremely active in the macro-prudential domain right now. However, it's clear that the current monitoring financial conditions are extremely accommodative. We know that and therefore that principle could actually help by generating some imbalances. So it's important actually that macro-prue is there to act if and when needed. So that's why I think that this exercise is not being led by the European Commission to modify the European framework for macro-prudential policies is certainly very timely and hopefully that will end up with a substantial improvement of the macro-prudential framework. When we talk about the macro-prudential framework, of course, we have to actually refer to issues like the availability of instruments. Vitor already mentioned that, the allocation of responsibilities between the center and the national jurisdictions, the coordination across different policy domains, and also the risk for circumventions of what we do with foreign institutions or with non-banks. In principle, I'm not subject to macro-prudential regulation. So what is the main features of the current European Union or European Eurozone macro-prudential framework? First, it's clear that, as we said, there is a limited toolkit, so essentially only capital-based measures are recognized in the European regulations, although there are much more freedom at the national level. Of course, they are free in principle to add instruments to the ones that are recognized in European regulation. Of course, macro-prudential toolkit for non-banks is even more limited. I was stressed in this report by the SRV last year, although this may not be an issue. If some speakers this morning have said, actually, what we talk about macro-prudential measures for non-banks, in principle, we are thinking about the micro-prudential tools that will actually be activated following a macro type of motivation. In this case, of course, it is much easier, actually, just to be able to act also in the shadow banking sector. Thirdly, many European regulations certainly recognize the issue of the cross-border contagion, who have the reciprocity principle there that will allow in principle for all banks which are active in a particular jurisdiction to be subject to the macro-prudential tools, activating that particular jurisdiction, regardless on whether, actually, they are branches, for instance, of foreign institutions. Fourth, this is important, is a fairly decentralized system. So the initiative always rests with the national authorities, and the ECB can really top-up, but not top-down the measures taken at the domestic level. And also, as I said, it's asymmetric in the sense that the ECB can actually strengthen the policy instruments and can actually loosen the domestic actions. And also it's important to bear in mind that the ECB works on the basis of separation principle, which is articulated around the concept of the no-projection procedure, which is true that it's quite clear, quite stringent, quite strong in what refers macro-prudential issues. The initiative is always with the single-supervisor mechanism with the supervisor board. To prove there are more possibilities, actually, to DCB, to be involved in the discussions in the process much earlier. So, of course, those features of the European framework in respect to macro-prudential policies as always is sort of a result of a combination of political and technical elements. Of course, we can discuss all of them in the discussion, but let me just concentrate on possible ways to strengthen this macro-prudential framework by looking at the experience of countries which have actually activated macro-prudential policies in the past and, more importantly, on empirical evidence which have been discussed in this forum this year, last year, or in other of the many, many macro-prudential meetings or seminars which have taken place over the last three years. So, what we talked about first was the nature of the financial cycle, which is obviously the framework in which we have to discuss the macro-prudential policies. We have some stylized facts which are now very clear and almost accepted by every scholar working on this field. First, that certainly there are important differences between the financial and the business cycles. So, typically, the financial cycles seem to be longer and sharper than the business cycles. For instance, I can refer to this paper by Claesens, Boyle and Tehrones. But also it's true that the financial and business cycles are actually correlated and in particular, recessions that take place when the financial cycle is in the downturn are particularly severe. And also it's true that financial cycles vary across countries within the European Union and within the Eurozone, although you can identify clusters of some countries for which actually the degree of concordance of the financial cycles are not that small or quite significant. Even above 75%, I can refer to this paper by Shuler, Hebert and Peltone on that matter. So, what else? In terms of the effectiveness of the policy instruments, macro-prudential instruments, obviously, I would say work well to increase the resilience of the financial sector. Basically, they just basically limit the risk exposure by banks or increase actually the capital which is available to afford those risks. In principle, by definition almost they increase the resilience of the financial sector. In terms of the pro-objective macro-policies, I think the evidence is quite clear, almost straightforward. There is some more debate about the effectiveness of the macro- pro-policies in what aspects actually smoothen out the financial cycle in particular, I have said, to moderate great expansions or credit constructions in return. Although I think the evidence by now is relatively supportive that they tend to be also effective for this macro-objective although, again, the evidence probably is more dispersed and the quantitative estimates vary sometimes in a significant manner. I think the evidence also shows that instruments that operate through quantitative restrictions, such as loan to values or debt to income, or the service to income or concentration limits, tend to be more effective than those instruments that work through internal pricing within the banks. Such as capital buffers or changes in risk in risk weights. I think there are some papers certainly pointing to that and also I would refer to very recent paper that has been just released in the BIS website by Tambacorta and Murcia on the evidence that could be obtained from Latin American countries. Another style as facts from the literature is that among capital measures, debt to income seems to be more effective at loan to values and this is not totally surprising taking into account obviously the loan to values are also quite pro-cyclic. Another element of the empirical evidence is that principal macro-potential instruments work symmetrically, so they help both actually to moderate the expansion in the upturn or the financial cycle as well as actually to moderate the downturns in the financial cycle to moderate great contraction. Although this latter effect seems to be less significant than the former, so that principal, probably due to the inability actually macro-pull policies to compensate for the lack of demand, what happens is that in the downturns in principle the ability to moderate great contraction contractions is less significant than the ability in the upturns actually to moderate great expansions. I must say that looking at the Spanish experience as you know with the Spanish Spain actually was a country in which sort of the primitive sort of macro-potential policies were implemented before the crisis by the use of the so-called dynamic provisions for the experience accumulated from that period is that it broadly consistent with this empirical evidence except for the fact that in Spain actually that this dynamic provision was actually more important to moderate the credit contract contraction in the downturn after the collapse of the real estate sector than the this was more important the effectiveness of the dynamic provision to moderate actually the great expansion which was quite significant but in any case more or less is consistent with this empirical evidence. So in some I think that available empirical evidence certainly strongly supports the addition of other non-capital based measures to the toolkit which is available now for the European Central Bank certainly supports actually the fact of enlarging the set of macro-potential policy tools which are currently recognized in the European regulation and by doing that actually we will do sort of take advantage of the experience which has been accumulated in many countries recently in Korea, Canada, Brazil, New Zealand Sweden and even within the Eurozone in the Netherlands probably we will have afterwards actually a presentation on this experience so it's clear that both the empirical evidence cross-country plus the experience in several countries what you observe is that actually you have a number of macro macro-potential policy instruments which are particularly effective and in particular to moderate the financial cycle and it's something very difficult to explain why those instruments are not available in the European regulation why they are not available in particular for the European Central Bank also I think that this empirical evidence supports pretty much symmetric macro-potential regions and therefore actually the possibility for example for DCB actually to top down as we'll have to top up the actions taken at a domestic level I think that more or less I think the empirical evidence supports also the idea of decentralization to the extent that the financial cycles are not totally correlated across countries but I think that when we talk about that actually the degree of decentralization, decentralization macro-potential policies it's important to keep in mind actually also the synergies potential synergies with other policies which are conducted on a centralized fashion in particular micro-potential policy as you know with the SSM this is centralized in front for at least for significant financial institutions as well as for monetary policy obviously so I think it's this idea of synergies of macro-propolisies with other policies which are conducted centrally it's relevant when we talk about the optimal degree of centralization also of macro-potential policies but of course this discussion is only relevant to the extent that this separation principle that I referred to before between different policy domains is taken in a pragmatic way so you don't take it too read so let me just spend one minute on that so of course that will be ideal we know that we could actually identify three different policy domains systemic financial stability the situation, resolvent of individual financial institutions and price stability it would be great that we could separate completely those three objectives it would be great that we could locate different instruments to each of those policies because by doing that we could actually sort of give a very specific mandate to a particular agency actually to try to address that objective without much need of coordination but of course as always world that the policies objectives are interrelated as we saw the financial and business cycles are correlated that financial stability can be affected by both macro as well as micro developments and also by monetary dynamics obviously but it's not only that it's that the policy instruments which are actually used in different domains often coincide this is certainly the case of interest rates certainly drive both and the business cycle when you talk about actually the identification of both the business and the financial cycle you see that interest rates explain both financial and the micro and the macro cycle second is that many macro tools such as capital addons or the leverage ratios or concentration limits those are also micro prudential tools and when you talk about strictly about micro policy tools like pillar 2 I mean you are actually by actually by conducting these micro prudential policies actually you are also affecting obviously the macro environment just to give you an example when you have actually a pillar to decision you have a component of this pillar to decision here at ACV which is called a pillar to guidance and the magnitude of this pillar to guidance is actually calculated on the basis of stress test it's clear that by just calibrating the degree of severity of the adverse scenario of that stress test you are requiring all banks across the world more or less capital so when you are operating this pillar to a pure micro policy tool you are obviously affecting macro conditions so there is always this interaction between the micro and the macro and actually we know that even formally in the legislation the capital requires a rectifier and in 1998 it's even recognized that the pillar 2 could actually be conducted to follow actual macro consideration so it's not actually tailored to individual institutions it's recognized in the directive that could actually be used in a different way so I think it's clear that by the interaction of objectives and instruments you see that there is no possibility to properly conduct the macro prudential policies if you don't actually have sufficient coordination with the other policy in other words I mean this system of objectives and instruments cannot be solved recursively I mean it's just a simultaneous equation model so you better actually get the right coordination to do everything properly so I think all those point to the need actually to take the separation principle in a pragmatic way of course you have to be mindful of all the institutional, legal and all types of considerations which are obviously irrelevant this argument basically says that you need actually to protect the reputation, the credibility of the central bank about conducting monetary policy you cannot sort of to do excessive burden on the central bank you cannot pollute actually the nice monetary policy function by these nasty financial stability things all those are arguments which are obviously well taken but at the same time I think it's clear that from the point of view of effectiveness you better ensure a good coordination and in particular a good preparation of decisions in different policy domains by ensuring the right communication between people in charge of the preparation of different policy decisions people in the micro side they should talk together exchange information and data in order to be able to take the relevant decisions in a proper way so it has to be more concrete and I finish with that I think it's important that when addressing this issue of improving the macro buddhism framework in Europe so we concentrate on effectiveness that's important so let's better actually look at the evidence what type of instruments are more effective and what other instruments are less important important to favor coordination to facilitate coordination not only actually across countries but also across policy domains and certainly we have to obviously respect the deep legal and philosophical constraints which are very relevant obviously in the European Union certainly I think there is a case to keep this internalization so probably we should keep this feature that national authorities are the ones who take the initiative but in principle this could make sense it's more or less consistent with empirical evidence on the degree of correlation between financial sector business financial cycles across countries but as important as that of course to enhance as much as possible the ability by the ECB to smoothen the Euro area business cycle as well as to facilitate the right coordination of all actions taken in the macro potential domain in the national jurisdictions and for that certainly you need actually to allow the ECB to use non-capital base measures which are the ones which are going to matter which are going to be more effective second important to be able to loosen national actions even if in practice this may not always be relevant, certainly less relevant than previous proposal also it's important to try to limit potential leakages through the operation of foreign banks or non-banks so that to some extent to strengthen the macro dresser framework you have to see ways actually that some measures could actually be imposed also on non-banking financial institutions certainly here the operation non-capital based measures may actually help that will be more suitable actually to be applied for institutions which are not subject to capital regulations and important of course the ECB take seriously those powers and be sufficiently proactive when utilizing the available ability actually to favor actually systemic financial stability for the whole year or so and then a big challenge for communication for communication I think it's important actually that we put emphasis in conveying a message of adequate coordination of different policy domains maybe at present it's not that relevant in the future whenever more active or more significant macro prudential policy action will have to be taken I think it's important that from the ECB it conveys a very clear message for the markets but also for the public in general actually those different measures taking are consistent with the measures taking in other fields so people actually feel comfortable on how the ECB is actually conducting all its responsibilities and ideally of course as we mentioned this morning as well we would like actually to have some progress in the definition if it's something close to a macro prudential policy target I know this is very difficult but it's probably something which is badly needed in order in particular actually to enhance the accountability of the agency which are responsible for macro prudential policies thank you Thank you very much Fernando for having given us this overview of the setup that we have in Europe I think it will facilitate the continuation of the discussion because it saves others to repeat some elements of that framework so now I give the floor to Sharon please Thank you Vice President and distinguished guests on the panel this afternoon and many thanks for the kind invitation so I think as we've been hearing at the conference significant progress has been made in recent years in developing the EU's macro prudential framework and I think much credit for that must go to institutions like the ECB and the ESRB and the European commission as well as to the national macro prudential authorities the manner in which we now conduct macro prudential policy emerged in the context of the global financial crisis and recession and the relative impact of these and the interaction with diverse domestic factors has led to a policy framework which I think in broad terms shares common themes and objectives while also reflecting important country and region specific characteristics so it's timely that we now consider our broader framework in the EU as the economic recovery has become established and as we see a normalization of the financial cycle and at the same time we're potentially presented with a broader range of more diverse sources of risk than when the parameters of our current framework were being designed these include the increasing role of non-banks in financial intermediation and the challenges arising from the decision of the United Kingdom to leave the European Union so to date we've learned a lot by doing and indeed a lot has been done in the establishment of the framework and the activation of various macro prudential policy instruments across the EU but today I'd like to focus my remarks on some of the challenges in implementing macro prudential policy particularly through borrower based measures for the mortgage market as some of you may know already the central bank of Ireland introduced caps on loan to value and loan to income ratios in early 2015 and both the introduction of the measures and the first review of them which we undertook in 2016 threw up some interesting challenges some of which I plan to share with you here today. They include the need to frequently communicate on the objectives of the measures and the need to regularly review both their impact and effectiveness and more generally I think some other challenging issues with respect to these instruments also include whether there should be a more coordinated European framework for their introduction from Fernando. So borrower based measures such as loan to value and debt service to income, debt to income or loan to income ratios have been introduced in number of European member states over recent years. Prior to the financial crisis these types of measures were mainly deployed in non-European countries including for example South Korea, Hong Kong, Singapore and a number of others and there is certainly empirical evidence regarding their potential effectiveness in reducing risks to financial stability The evidence however is rarely clear cut and the impact of such measures can vary depending on among other things the characteristics of national housing markets and the position in the financial cycle. So while subject to intense debate when we introduced the mortgage measures in 2015 the legacy of the financial crisis in Ireland was still to the forefront of many people's minds and I think that this to some degree facilitated the subsequent broad societal understanding and acceptance of our measures Now our two primary objectives when introducing the measures were first enhancing the resilience of households and banks to economic and financial shocks and second reducing in a structural way the prosyclicality that can be inherent in housing and credit markets by capping the amount of high LTV and LTI mortgages allowed at any one time However while we have emphasised in all of our public communications that it is not our objective to target house prices this has proven in fact to be a very difficult message to get across to the public Underlying much of the public discourse on our mortgage rules is the central issue of affordability and in this context it has been challenging for us to explain that house prices are determined by a complex interaction of both supply and demand side factors that although our measures may impact on prices that is not their primary goal and that housing market policy issues like taxes building measures and to the shortage of supply of housing for buyers and renters are outside of our remit as a central bank Now our view is that not only would it be extremely difficult to choose an appropriate target for house prices but also extremely difficult for us to hit such a target Financial sector regulations cannot really address these issues which must instead be addressed by other targeted policies And to banks we have also had to carefully explain that these are limits and not targets and we continue to monitor the risk appetite of our banks in this regard So figure one here shows the recent history of property prices in Ireland and it also shows some uptick in mortgage lending across some segments of the market Although the overall numbers remain modest because of the scale of deleveraging following the crisis the volume of new lending is now going up In terms of transactions in Ireland cash buyers continue to account for a very large relative proportion of activity at around 42% in 2016 So given these market dynamics existing supply constraints and strong demand factors are unlikely to moderate significantly in Ireland in the short term and I think this requires us to reinforce communications of the objectives of our measures Now in terms of their design our measures create a framework which allows us to better take into account the balance of risks in the economy by adjusting the parameters according to current market conditions Having this type of flexibility is important for a small open economy like Ireland The mortgage measures are also complementary to our existing micro-predential supervision and to lender's own risk management practices They are not intended to capture all aspects of credit risk associated with any individual borrower nor to replace or substitute for a bank's existing internal credit assessment policies and procedures Rather they are designed to reinforce and strengthen the existing suite of credit risk mitigation tools that are employed by prudent lenders Following the crisis we also introduced comprehensive loan-level reporting requirements on the main Irish banks This data provides us with information on a wide range of loan characteristics including for example outstanding balances loan terms and loan repayment for the population of mortgage and consumer loans These data are critical in the calibration and evaluation of our measures The activation of our central credit register in June will further enhance our analytical capacity with respect to our evaluation of the measures and may also facilitate us in moving towards a debt-to-income ratio in the future Our measures, as initially calibrated set out a loan-to-income ratio of three and a half times income as the anchor of the framework with the value of loans that could exceed the LTI limit of 3.5 not greater than 20% of new lending in any given year This only applies to primary dwelling homes and there is no LTI limit for investment purchases and Fernando in his remarks already mentioned the importance of LTI or DTI in terms of their effectiveness In addition a maximum LTV of 80% was set for non-first-time buyers and for first-time buyers a higher cap of 90% applied for house purchases for the first 220,000 euro and the 80% LTV then applied for that part of the value of the house which was above 220,000 euro and banks were allowed to issue up to 15% of their primary dwelling home loans above the LTV limits on an annual basis We apply a more stringent limit to the purchase of houses for investment purposes and here the limit is a 70% LTV with up to 10% of new lending on this basis allowed above the limit Now at the time of the introduction of the measures we also committed to regular reviews of both their impact and effectiveness This we believe represents good practice and mitigates against any potential in action bias It's also consistent with the commitment for quarterly reviews of the critical capital buffer setting and the annual reviews of the identification of and the buffer setting for other systemically important institutions as prescribed in the CRR and CRD The review process was overseen by our new Macro Prudential Measures Committee and involved a range of analytical projects that looked at issues like borrower impact the early performance of our measures against the stated objectives and any side effects including relation to impact on the rental market or other leakages and to enhance transparency and understanding our research outputs on all of these issues and records of the meetings of our Macro Prudential Measures Committee are all published on the Central Banks website In addition feedback from external stakeholders was gathered through a call for evidence on the impact of the measures and submissions were received from a variety of property financial services firms and groups, political parties government departments and academics and also individual members of the public and the submissions were a very useful input for our review and were all also published on the Central Bank of Ireland's website Now it's obviously the case that it was very early after the introduction of our measures to be able to find much causal impact but I would say our review still threw up some interesting findings and resulted in some changes to the design of our policies So firstly we saw a reduction in high LTV mortgages and simulations from loan loss forecasting models indicate that the resilience of banks and households have both increased We found that the introduction of the measures had an immediate and material impact on moderating price expectations Actual price increases also moderated although it is more difficult to describe any causality to our measures In general we found that the overall framework of the measures is appropriate and effective in meeting our objectives Nonetheless following the review some changes to the parameters were implied to improve the sustainability and effectiveness of the overall framework Most notably the higher 90% LTV available to first time buyers is now available at all prices This change was in part to avoid a situation whereby the 220,000 euro cutoff point would have had to be recalibrated at regular periods as house prices increased And this particular change was also supported by new research findings of lower credit risk for first time buyers at all house price levels The other main change arising from the review was to the structure of the proportionate caps such that instead of an LTV allowance of 15% for all owner occupier mortgages separate allowances for first time buyers of 5% and second and subsequent buyers of 20% are now allowed and we made some other technical amendments in addition High levels of household indebtedness and a large number of households in mortgage arrears and or with negative or low levels of positive equity in their houses remain prominent features of the real estate market So whilst not materially affecting the amount of allowances available the differentiation of allowances of first time buyers and second and subsequent buyers allows for a more precise calibration of our rules by borrower type if in future they need to be tightened or loosened in response to emerging risks or other developments in the property market Negative equity borrowers are also exempt from our measures and as more second and subsequent buyers move from negative equity into small levels of positive equity the higher level of exemptions we allow will ensure the measures do not act as an excessively binding constraint Now taking communication and calibration together I think people broadly understood the rationale for the limited refinements and the minor recalibration of the framework However with such levels of house price increases as you saw on the slides earlier we found the need to communicate that policy stability is important for both households and banks As central banks we have a responsibility to reduce regulatory uncertainty and therefore we think annual reviews are the most appropriate In the case of the LTV and LTI caps it's intended that the annual review will allow us to evaluate the structural design of the framework analyse any side effects or unintended consequences and assess whether the parameters are calibrated appropriately for current housing and credit conditions The experience in Ireland so far corresponds with the broad international experience as to the effectiveness of borrower-based measures for a more good market given country specific features A framework for transparent and accountable policy making in this space supported by consistently communicated and well-defined objectives and a related evidence base are necessary conditions for their acceptance and effectiveness At present national macro-predential authorities play the central role in implementing borrower-based measures The ESRB of course has an important coordinating role via its notification process and national authorities also benefit from their deliberations and interactions with the ECB The ECB as we heard already also has an important top of power with regard to the capital based instruments like the CCYB and the OCB The impact though of borrower-based measures when they are binding is much more evident to the public at large than capital and liquidity restrictions which are imposed directly on banks Borrower-based measures can also have important distributional and welfare effects in society particularly in relation to access to home ownership I think these particular factors underline the importance of getting the design of the measures right taking into account country specific factors and also the need to communicate the overall framework and ensure it becomes generally acceptable in society as a permanent feature of the mortgage market So as well as the wide range of national specific institutional features which influence the design and calibration of such instruments this suggests that responsible authorities must also be accountable at national level although we should be humble enough to acknowledge that the interactions between macro-predential policy measures may not be fully or correctly identified ex ante Significant progress has been made in the analytical toolkit to support macro-predential policy across the Euro area as was outlined in some of the presentations yesterday I think as policy makers we should continue to draw on this input encourage its development and understand where judgement policy's impact, effectiveness and interactions is necessary In this regard, particularly as we are still in the early days of an active macro-predential framework in Europe, we should aim to avoid underlaps to ensure systemic risks are mitigated As the framework develops in the EU national designated authorities should continue to have a sufficiently broad set of tools to target identified systemic risk I think we should also consider continue to learn by doing combined with a commitment to regularly, rigorously and transparently review our policy measures we will ensure the most effective tools are in operation both in isolation and jointly to mitigate systemic risk So to conclude today I've touched on a number of challenges we have before us when considering the appropriate policy framework for Europe Now as we well know past performance is no guarantee for future returns However I think we can look back on the first generation of our macro-predential policy framework and how it has been adopted at both national and union level in a broadly positive light Important features should remain such as the prominent role of national authorities in identifying systemic risk and designing policy measures effective cooperation in the Euro area and ESRB and the appropriate acknowledgement in other dimensions and countries While the challenges we face are ever changing, the foundations we have laid and the commitment shown over the past few years can give us confidence going forward Thank you very much Vice President and thank you for your attention Thank you very much Sharon for sharing this experience which is very important because it's one of the examples that we have had in Europe of effective policies as I recall yesterday 9 member countries adopted measures using LDVs, DTIs, LDIs since we started to have competences in this matter I give another floor to Paul and you need the remote Please Thank you Thank you Vitor I would like to be a bit maybe more practical in my presentation and run through the experiences that we have had with our housing based potential macro-prudential policies I jotted down three questions I have to apologize, I don't have too much math in my presentation or charts but I hope you can bear with me with these relatively simple slides Three questions and the reason I put them there is that, and the point already came up in previous presentations, communication is very key in this area to be able to explain what you are doing to the public, to the politicians to the financial sector when you develop these new instruments is very key to their success and that's why it would be useful to have these three questions worked out a bit further in our national context why macro-prudential policy and the focus on real estate and what can you do there and also the issue of possible spillovers in terms of what we did in our institution, our central bank we did basically three things we started analyzing macro-prudential relationships much more in the financial stability department we started issuing twice a year an overview of financial stability and we started developing a macro-register of issues that we wanted to focus on in our analytical work secondly, we set up two coordination committees for macro-prudential policies one of which is an internal committee that consists of members of the supervisory departments of the bank, we are as you may know an integrated supervisor we do both supervision and monetary policy so the supervisory people are in there the payment system people are in there the macro and monetary people are in that committee as well as the financial stability people because we thought it's very important that we create a sufficient base for these policies also within our own institution and secondly we have a more national coordination committee the financial stability committee that meets three times a year it consists of the central bank the governor is the chair of that committee it consists of the authority for financial markets our conduct of business supervisor and the ministry of finance and as a fourth party and I always have to explain this we have a central planning bureau in Holland which sounds a bit old style soviet but it is really an economic think tank for the government and also that institution is represented in our financial stability committee and we issue a report each meeting and the report is subsequently sent to the parliament by our minister of finance so we don't publish the minutes as Sharon just mentioned but we do issue a paper that summarizes our deliberations that's on the coordination mechanisms and thirdly on the development of instruments we have so far developed both capital based instruments we have in place a systemic risk buffer which is a three percent for the major banks and one percent for the somewhat smaller banks but still relatively big and systemic institutions the counter cyclical buffer is formally introduced but set at zero and in addition it's the topic of this afternoon's discussion I think we have also measures focused on the housing market real estate measures on which I will elaborate a bit more it is our experience that as I said at the outset you really have to create support explain or you might even say sell macro prudential policies to your system it is something relatively new and it's been our experience that it's not an easy sell sometimes people are used to monetary policy interest rate policies people are used to micro prudential policies but to explain macro prudential policies is sometimes a bit of a challenge but we have been working on that over the past few years and we have not been 100 percent successful I should say there is still somewhat hesitance in particular with regard to our LTV measure that we introduced a few years ago in terms of the acceptance by the public, by the financial sector by the politicians of that particular measures and that's also why we are very pleased to see the ECB Vitor also Sergio who has introduced these policies because that helps us tremendously as does incidentally what the IMF is doing with its FSAPs and its focus on financial stability it's very key to us in terms of being able to explain what we are doing and the support we get from those institutions is very vital to to our work now let me then turn to why macro prudential policy very briefly we explain most of what we do with the financial crisis and here you see four blocks of reactions to the crisis that we have undertaken in recent years of course the first one and the most I would say the gut reaction of any supervisor is when there is a financial crisis to increase the requirements for capital and also under Basel III for liquidity so that's something that we have done in the context of the European discussion in the context of the CRD I would say the more straightforward reaction what we have also done is we have introduced a novel approach to supervision incidentally we were supported by that by an interesting paper by the IMF the fund with the inspiring title learning to say no the title of the paper was learning to say no and it was addressed at supervisors who apparently in the view of the IMF didn't say no enough but at least it helped us that paper helped us to try to become more intrusive become more conclusive in terms of our conduct of supervision that was the third second block of reactions to the crisis the third is more forward looking supervision we also noticed that the traditional supervision and the traditional regulation is very much focused on capital and liquidity and in the sense you might say that it's backward looking in the capital ratios basically you see what has happened in the past but you don't necessarily see what's coming in the future so we've been trying to think of more forward looking elements into our supervision and we came up basically with three I would say the first two you see in the third block we focus much more than we used to in our supervision on business models of banks business models of financial institutions because we feel that if you get a feel for the business model of an institution you also get a feel for whether risks are being identified are being addressed are being mitigated by the institution and we also and that's I think maybe more well known our country is also focused on elements of culture, behavior governance in the financial sector now I should say on these two points these are difficult elements of supervision it is much easier to raise a capital requirement than to start supervising content and culture in the financial sector so it's not an easy thing but we feel that by doing it you would get more of a forward looking impact on the stability of your financial sector now the last point and I said I had three elements the last of the three is the fourth block enhanced macro-prudential oversight and that's the topic of this afternoon and these two days conference we also introduced macro-prudential analysis and macro-prudential policies because we also feel that macro-prudential is very much a forward looking element into regulation into supervision for instance through stress testing which is a key instrument of macro-prudential supervision and you get a feel for how the sector is affected by changes in the environment by changing in market prices by changing in scenarios by changing in the economy so that instrument I think is a very clear example of an element of more forward looking supervision that we also introduced in my country then turning to real estate turning to the housing market what have we done there well first let me say that it's our strong feel it's a strong position that housing markets and real estate markets are very key to financial stability it's also been the outcome of many studies conducted by academics by the fund I recall Rogoff for instance but also other papers that there's hardly any financial crisis that didn't have some real estate component to it so I don't think it requires much convincing to see that there is this financial stability angle to it but also and we have witnessed that very much in our country there's also a strong impact on the economy on the economic developments we have seen in our country economic developments being very positive and prosperous during times when house prices were appreciating and we thought we did a very great job as macro policy makers because the economy was growing unemployment was low and we did everything quite well it seemed but I think in hindsight a lot of that was really the result of appreciating house prices and we noticed that during the period of 2008-2013 when house prices were coming down because then we saw the same reaction but in the opposite the same impact but in the opposite direction we saw a stronger decline in activity, a stronger softening of growth and employment developments then we had expected and that again supported us in our view that one has to also from a macro economic perspective be very well aware of the impact of housing markets developments, real estate market developments on the economy on economic cycles and on the financial cycle now looking at housing markets I should say and I was already mentioned also by previous speakers these markets differ a lot between countries I would say that of all the financial markets that we look at foreign exchange markets, interest markets derivative markets the difference between countries is largest probably in real estate markets and that has to do with the impact of legal differences there are large differences between the rules for home ownership the rules for transacting real estate and that's the whole issue of single recourse versus double recourse which makes a tremendous difference in terms of the stability of the market and the security of the collateral in a country and these differences between countries are large so when you think about international agreements or rules for housing markets you need to keep that in mind that these differences are quite large and not only there are legal differences but there are also for instance important tax differences sometimes I feel that tax although it's a word that doesn't really is referred to much in these discussions tax is for housing markets a very key variable let me give you one example from my own country we have had and we still have a very generous deductibility of interest payments on mortgages and that by itself is a tremendous incentive for people to borrow and buy houses and even to some extent to an irrational level I mean people are so keen to avoid paying taxes that they might put themselves in a very expensive house which of course they may enjoy but they may also not be fully aware of the risks that they run and also that the banks may not associate with that but that's a very strong incentive too and also a very strong difference between countries and a third element I want to mention is cultural differences cultural differences also play a role in housing markets in behaviour of the population and households on these markets and for instance in my country people are very keen to own a house and that's already very different when you go to our neighbouring country Germany which is a renters country it's very hard to be called a very successful Dutch when you don't own your own house I'm sorry to say maybe but that's the way it almost seems to be and that's very different to other countries and that by itself drives also these markets these cultural elements that are internationally different different between countries of course these differences in culture in tax and in legal we have very high LTV ratio in my country because people really like to borrow as I said before for their houses so we have had LTVs up to 120% in the past people basically bought the house they paid all the taxes on the house they paid all the renovations on the house they bought a car and a boat and then they were done and then they had 120% of LTV I'm exaggerating of course but that's the way the system worked at some stage and we really felt we had to cut back on that so we have in place now a policy that brings down the LTV and you need to understand me right because many people don't understand the numbers from 106 to 100 and many people think I make a mistake I should say 94 because how can you have 106 but we really had a policy in place to limit LTVs to 106 up to a few years ago we bring it down by one percentage point a year so this year 2017 the LTV maximum in my country is 101 and next year it will be 100 now we have been recommending through the financial stability committee that I mentioned earlier on to bring it down further to 90% we have been supported in that intention by the ECB by the IMF by almost practically everybody else outside of our country I must confess within my own country the applause is less clearly audible that is really something that is a very difficult element as I said before because of the reasons to be accepted by our population by our financial sector by our politicians we will continue to push we hope that you will continue to push also but this is important but my point is really these markets really differ because of these reasons and the policies also for that reason we have adjusted to some extent to those circumstances incidentally we are also reducing this technical stability very gradually so and we are also having new amortization rules we have also rules that limit interest only mortgages so we are doing a lot of things actually to bring our market to a more a more stable and more I would say internationally comparable system but it is somewhat slow process and we have to keep keep pushing so what are the lessons I think housing markets are very different but are very relevant from a market perspective so we need to look into those markets from a market view point they differ widely, taxes are very important incentive and also we in the recent study that I should just mention I just want to mention it very briefly a few days ago and this is an important topic and it was quickly erased by Paul Tucker this morning we see a large discrepancy between developments in major cities and in the rest of the country so when you talk about house prices this is always a talk about a sort of average I think it is also interesting at least to note if not to think about whether there is any policy implications the difference between housing price developments in major cities and in the regions now very briefly and I just need one more minute maybe on a final topic that is also related to the housing market issue in my country which is the spillover issue should we have macro crew policies beyond banking I can already reveal the answer that I would give to that question which is yes I think this is important why is it important and in my country we clearly see that when we tighten up the rules and the capital requirements on banks you see for instance this mortgage market move out of the banking sector towards insurance and pensions there is a very clear shift because of the differences in regulation between these various sectors is that something that is wrong is that something that shouldn't be there and I don't think so I think that can be good reasons why for instance insurance companies and pension funds which have long liabilities also are in search of long assets and mortgages are generally long assets at least in my country but we need to be aware of this what I would call water bed effect when you tighten rules in one part of the financial sector on other parts and if there are financial stability implications you should also consider whether you should not do something about those implications in those other parts of the financial of the financial sector so I think macro crew policies beyond banking are required and as already mentioned also by Sharon and previous speakers earlier in the conference it would be good to also consider more borrower based measures and activity based policies in addition to the more traditional lender and entity based policies just final point on the implications of our experiences for the EU and I think housing markets are key so it's very useful that the commission also is currently thinking about measures aimed at those markets I think it is a useful addition to have not only capital instruments but also non-capital instruments of a macro prudential nature and lastly communication is really key and you have to explain these new instruments and you have to spend some time on that, spend some energy on that to be able to to have them land in the right way, thank you very much Thank you very much Yes, you are right with your last point and all the others but in a way strange that apparently it's easier to communicate monetary policy which in some circumstances has more material consequences including from a distributional point of view but of course is governed by the tradition of monetary policy being sort of more mysterious and so not immediately understood in its all consequences whereas macro prudential policies of this nature are so explicit that are immediately understood by public opinion so last but not least certainly now we are eager to hear from the commission what Sean Berrigan can tell us about what will be the future of the macro prudential framework in Europe Sean and thank you very much for coming Thank you Victor and thank you very much for the invitation and after your what I would say overheated introduction and flattering introduction I'm going to lean into the wind a little bit I'm just looking to the program I noticed that I'm possibly the only speaker who is not and never was a central banker is not a never was a researcher I am a career civil servant guys there's still time yes but unfortunately running out and nowadays I do lots of things I do a bit of macro prudential a bit of macro prudential a bit of economic analysis a bit of legislation and I do it across all the financial sectors so I am certainly not a macro prudential expert in the sense of this conference I am I think what the Irish civil service they call a gifted amateur I'm amateur maybe not so gifted but at least I'm amateur but the commission is however responsible for the legislation that underlies the macro framework and we're responsible for reviewing it so it's been very interesting to be in this conference to hear what is being said I've tried to cross reference various things I heard today and made a complete mess of my notes so you may pay for that as I go along and do my best I've also gone one step further than Paul I don't have just no formulas I have no slides at all so let me start by saying what I was asked to speak about I was asked to speak about the ongoing review of the legislation underlying the EU macro prudential framework and what I'll do is I will draw quite heavily on what we have taken from the consultation some of my own prejudices may come through but you'll have to guess exactly what they are what was the starting point for the review well let's start with timing it's been about seven years since we started this exercise so I guess it's time to look back in terms of history I think we have to be honest and say that the EU macro potential framework has developed in circumstances which were not usual and perhaps not ideal the ESRB which was the first element put in place that was established basically in the middle of a crisis it was established in the middle of a crisis which ordinarily would have been expected to prevent if it had existed beforehand so it had a sort of difficult existential birth I think it found it I think quite difficult to find a role in a rather crowded institutional space so this has been mentioned already that the tools we found the macro potential framework used turned out to be rather micro potential in nature applied of course at a macro level so it had to kind of find its way into this institutional framework in the EU because of that we opted not to give it binding powers we opted to give it comply or explain powers this is because we knew it would bump into other important policy fields like taxation and others and it would be better if it used moral persuasion rather than create a sort of conflict it was of course also a very new animal that had been some experience of these frameworks and other parts of the world but not in this part of the world and so the legislation we put down was fairly light if you compare it to the legislation we put for the micro potential supervisory authorities it was very short and that's because we felt it was better to allow this new animal to sort of evolve organically into its environment but that's another reason why I think you have to come back now five or seven years later and have another look a second consideration here in terms of history is that the macro potential toolbox was in a sense developed in another place so it was not developed inside the ESRB it was developed in a discussion of the CRD, CRR which was a micro potential forum and so the result of that was of course that the macro potential tools are spread across the piece of legislation they have similarities but very different procedures different triggers so in the end it makes for a rather complicated toolbox complicated even for those who use it but completely unintelligent for those who don't use it on a regular basis so that I think has to be a born in mind as well the reason we had this of course was because it was a very difficult debate for macro potential tools and why was the debate difficult it was difficult because macro potential policy in the EU has a very specific challenge and that is you have to find a trade off between in a sense the vocation of macro potential policy in the EU which is to manage national specific developments in financial systems but you have to balance that against the need to preserve the integrity of the single market so there has been this sort of balancing act throughout the process and that is reflected I think in many of the decisions that have been made the ESOB of course is a body which has to coordinate macro potential policy at the national level so it is the one that has to find this balance between national specific measures and the single market based on the rule book that we have given it and in the consultation there was a lot of comments about whether this rule book shouldn't be streamlined shouldn't be made simpler, shouldn't be made easier to use I think the question you have to ask on the other side then that if we make the rule book more flexible more flexible to use is the ESOB strong enough to manage the trade off between what is needed at national level and what is needed to preserve the single market so in a sense it's a trade off of institutional strength versus tight rules so I think the stronger the institution the more flexible your rules can be and that's a little bit the thinking that comes through from the consultation of course looking forward now we're not looking forward but more recent history we had of course the creation of the SSM as part of the banking union which has changed the geometry a little bit of the ESOB we have a sort of macro potential body within a macro potential body a very large one it's also an issue that the ECB is both micro and macro supervisor potentially so these are all things that banking union has changed and Victor feels we didn't go far enough we thought we went far enough but it's a consultation so you're entitled to consult now we have CMU which is another reason why we have to think about the macro potential framework do we want to expand the scope or not or exit and that is the one and only time I will mention that but of course it is relevant to the macro potential framework as well so I think if you look at this history you see that macro potential framework was built sequentially on a very piecemeal basis so it is kind of it wasn't that we were able to focus on it and create a coherent structure at the same time we had to do it in pieces and so it has turned out I think to be pretty good but there's obviously scope for incoherence and inefficiencies and the questions that came through the consultation were questions about could it be made more efficient can it be made more transparent more accountable more comprehensible I think this is important because as Sharon said earlier and others have said macro proof can have important distributional effects it's not just about financial stability which is delegated to somebody if you are making distributional policies you have to be somehow transparent and accountable having said that and all of these difficult starting conditions I mean the general conclusion from the consultation was that the framework is in fact functioning fairly well so the ESRB is now well established it has made many important inputs to financial debates it has issued warnings and recommendations the toolbox is being used in fact it's being used and more than I thought it would be used is an issue because when you have complicated procedures and you're using these tools it means it's a very complicated policy work so again this is an issue about complexity versus simplicity in the toolbox I think macro potential policy has proven particularly relevant in the post crisis environment of low interest rates so it has allowed perhaps counter-intuitively it has been able to operate against and compensate for what was not there and it's also been particularly useful in the euro area of course when Member States have a single monetary policy and therefore it has a more longer term vocation so I think overall what's coming out of the consultation is that the idea is not to revolutionize the framework but to refine the framework so we'll look for specific areas in which you can enhance its functioning which is the message that we're taking from it so we're not talking about revolution we're talking about evolution and refinement now looking at the review itself you can say it's both timely and premature it's timely because as I said the consultation comes seven years after we started it has also indicated that the institutional environment has changed particularly with Banking Union but also CMU you see from the consultation concern about notable diversity notable differences and inconsistencies across Member States in how they're organizing macro-credential it's not even the case that all Member States have the same authorities in charge so in some cases you have central banks in some cases you have committees involving ministries, treasuries in other cases your committee is not involving treasuries I think there's one or two cases where the Minister of Trade or something is also involved so it's a very diverse structure and that was noted in the consultation so in a sense and also this complexity in the toolbox has come out very much in the consultation it's premature on the other hand because I think we've not really seen the framework operate over what I would say is a normal financial cycle this has been a post-crisis period so we've had low for long interest rates on legacy issues which make macro-credential policy that bit more difficult to operate I think it's more difficult to do what Central Bank of Ireland did in a legacy situation than it might have been in a more normal financial situation so again we have to take that into account when we look at the lessons that we draw from the functioning so far so where are we in the review process well we've had the public consultation which we were thankfully replied we had a hearing last year as well a public hearing and now examining based on that consultation and that hearing what we think are the appropriate measures to put forward and what's the appropriate timing I will highlight just a few preliminary findings that we're taking from the consultation first there's a view that the ESRB is performing quite well so there's no need for massive overhauls but it is a very large operation I think it is large because I remember Andrew Crockett saying to me at the time that during a crisis nobody does not want to be around the table so you end up with 80 people around the table but in normal times some may drift away but of course since we're still running through the legacy of the crisis we still have everybody around the table and therefore we need to look at ways of making it more efficient in terms of its decision making perhaps streamlining some of its procedures we must look at expanding its expertise so if we're going to go into the non-bank space is the current bank-centric structure the right one because it is very much built around central banks and it struck me when I was listening to Paul this morning when he was talking about delegated agents where does the treasury fit in all of this we of course in our structure of the ESIP did not include the treasury they're observer members and they're represented by the chairman of the EFC whereas we go to the United States where the EFSOC the treasury chairs the EFSOC I've had a lot of discussions with colleagues in the United States and we've not been able to work out which of these really best model or the most functional model but is it interesting to know where treasury fits around the financial stability debate because that's also coming out from the consultation I should say that when we come to the ESRB what we can do in legislation is to change the structure of the body we cannot change its internal functioning that's something which is for the body itself but to the extent that we can help that internal functioning by making discrete changes in its structure through the law then we'd be willing to do so on the toolbox again the general view was that it's working, it's being used I listened carefully to Paul and to Sharon it's interesting that they've both approached the same problem but they have different approaches to it and that may reflect national specific requirements or it may just reflect different ways institutions approach things that may not be a problem if they're all consistent but if we're all using the same tools in a different way we have to be careful that these don't create tensions and that these differences are fully justified the question also is do we need so many procedures for these capital tools we have five capital tools we have five procedures, we have five triggers four of them are structural and one is counter cyclical okay, maybe there is a big difference between an OSI and a G-Cyber for an SRB but maybe there isn't I think we have to probably look at that at some point maybe not now but at some point one issue which was brought up here and it's just to show the sensitivity of the disputed debate is the use of pillar 2 for macro-predential as you know in our proposal last November on Basel 3 a proposal not to allow pillar 2 to be used for macro-predential purposes but that has met with considerable resistance from some member states who see that as a loss of flexibility so this is just an example of the sensitivity of the debate and then the last point I'll make here is to say that we will look at the expansion of macro-predential beyond banking I think we clearly have to look at this particularly in the context of CMU but as we heard from the debate earlier today this is still an ongoing discussion I get the impression that and I see this also in the FSB that the argument over whether or not and how you manage the non-banking space for macro-predential perspective is still not closed I think we all kind of agree that shadow banks are in we can't agree on exactly what shadow banks are and I think until we get these sort of decisions clear we will have to continue to analyse but obviously when we get them clear then we have to consider what are the sort of instruments that we would need to put in the hands of the macro-predential supervisors and then the CMU angle there would also be important because it would now be a single capital market we might face exactly the same problems that we faced in the banking side in terms of trade-offs between national and single market considerations so with that I'll conclude by saying in our view the framework is still quite young it's only 5 to 7 years I think it has functioned pretty well given the atypical environment it was in I think this atypical environment makes assessment a little bit more difficult so it's not so easy to find the right benchmarks against which to assess it so this makes a kind of categorical assessment a little bit more difficult we've had the consultation as I said what's coming from the consultation I think we agree is that it's not about ripping up the framework it's about refining the framework and the key issues are going to be in my opinion around governance around this balance between the single market national specificities how to streamline a toolbox and how to consider these new tools long to value etc because they are very different from capital tools and this also as I was reminded before I came here they have different legal basis in different Member States so we also have to take that into account and then lastly I mean my own bug bear is that we have to make the whole process more transparent more accountable more visible especially because it's the right thing to do macro potential policy has implications for distribution in society but also if you want to convince the people that macro potential policy has a role and a legitimate role then you cannot do anything behind closed doors thank you thank you very much so I now open five minutes any questions among the members of the panel and then I will give the floor to the audience any remarks to some of the other interventions Fernando please yes thank you on these distributional effects of macro potential policies I'm glad you put it that way sorry which is macro potential policies as many other macro potential policies do have actually distributional effects but I think I like the way you put it because sometimes it's actually presented in a different way which is some macro potential policies have more distributional effects than other macro potential policies for instance we refer to along to value along to income they are considered to be especially regressive and therefore to have these distributional effects and often this argument has been used actually for instance not to give these instruments to other than the domestic national authorities because they are politically sensitive to some extent they can understand the sensitivity but in terms of the impact on distribution I'm not convinced that they have a more significant impact that any other macro potential policy that by definition is there actually to restrain credit growth in the expansionary phase of the cycle of course the ones who suffer more from this sort of tightness of the credit supply is going to be people with low income otherwise actually macro pool policies are not going to work full stop so we should not I mean we should understand actually distributional impact on macro policies but we should not try to refrain from using that in order to favor some instruments against the others thank you so now I open the discussion to the floor to comments remarks or questions to any member of the panel Paul yes comments but with a question mark at the end Sean mentioned FSOC in the United States in the context of the role of finance ministries my observation while I was in office and probably even more spending more time in the United States is one of the many reasons but one of the big reasons the FSOC is so controversial in the United States and in the Congress which it is is that it is perceived by the minority party in Congress particularly in the House but in the Senate as well to be the creature of the administration and this is reinforced by the structure of their independent regulatory commissions not the fed so much where the to characterize them as the minority party members of those commissions see their majority party chair going off to a meeting chaired by an administration Treasury secretary and chair is a point of the other regulatory bodies appointed by the same party and they object to that and you'll know about the famous incident where one of the commissioners turned up and demanded to be I don't know how well known that is over here I mean every member of Congress would know about it so it's a highly politicized body and so whatever you do be careful about politicizing whatever the Euro areas or EU's macro-prudential body is the second point about distribution is as Fernando just put it I mean that must be right what you say although I think there's a very important distinction between distributional effects and distributional choices but I think that the underlying distributional issue isn't just about inequality it's about the effect on individuals if an LTV cap is introduced and it is absolutely binding and it is framed in a certain way it doesn't matter whether somebody owns a field or has an inheritance coming or something like that the particular circumstances of their conditions are irrelevant to the fact that the cap binds they can't borrow that is absolutely not true the raising capital or risk weights that flow through to the price of credit because the price of credit as applied to particular individuals will take into consideration the particular circumstances of the individual and I would say looking back the reason that Mervyn and I were opposed to our having the power when it was we as it were to apply LTVs directly wasn't distributional effects in the way that Fernando has framed it although that played a part it was binding rules determined by non-elected people binding individual households and firms in ways that could not take account of their particular circumstances whereas if you work through indirect mechanisms interest rates, capital requirements risk weights etc the people that make those judgments about individuals access to credit in the terms of it is the private sector and that seemed to us to be a more sustainable position and where this will get tested to link the two points together is well one of you does something and the people that oppose it are in government and that they were not the government that introduced or partied to introducing the macro-prudential regime at EU level or at national level and eventually somewhere in the advanced world a government is going to attack a macro-prudential policy maker for hurting their voters their their base and that will be something that will be pretty difficult when it happens as it will I suggest Thank you Paul, there is nevertheless another element to that question of the consequences of LTV, ZTIs and so on which is that they are not necessarily prohibitions for anyone to borrow they just have to have more down payment, they have to save a little more before they can get the loan but they are not excluded per se and whatever are the conditions of inequality that exist before this question of provision of loans for housing that's something that depends on other subsystems in society that inequality that means that either by a big increase in interest rates or by having some rule about well, some people don't have immediate access and suffer as a consequence of the inequality that pre-exists this and of course these measures are taken under a mandate that has a trade-off with another valuable social objective which is financial stability in general and that's why there is legitimacy to take to introduce some limitations as we introduce limitations to circulation of cards and other things in the name of other values so I just to say that it is indeed as you entered not just a matter of pure distributional immediate effects I agree with that but it's indeed a complex issue and in the end what makes the difference is that individuals and public opinion immediately understand the restrictions coming from RTI and they fail to understand in the same easy way the restrictions or difficulties in getting loans just because there was a change in monetary policy in general so and the fact that they then understand quicker and react then leads to the policy makers more aware also of not having not involving central banks for instance in all the controversy that these sort of more concrete measures entail so but okay it's a nice point that it's not just pure distributional consequences anyone else yes please thank you I think we have to recognize that something else a bit is talking about EU and something else is different above the Eurozone because Fernando's presentation seems to suggest that this is the same but I think it's a bit different as regards the division of the powers between the let's say center and national authorities I think that there are more arguments for of measures to be taken on the center level than actually the cyclical I mean the examples of Ireland and the Netherlands are clearly showing that you have to have you have a difference and you have to have these instruments on the national level however if we are talking for instance about the CFISR charges it's very difficult to judge what is their siffiness from the level of the national authorities it's as a matter of fact you have to take into account the effects on other countries the interconnectedness all this stuff so I think that there is more arguments to bring this type of the powers to the level of the center and as a matter of fact they are more alike micro-prudential type of measures than macro-prudential type of measures so maybe this is an argument that at least in context of the eurozone has to be taken into account as regards the pillar 2 I think that some of the concerns that the countries have raised in response to this idea that it should be their primary the micro-prudential I think is that there are still a lot of let's say excessive procedures related to the use of systemic risk buffer so if the systemic risk buffer will be more flexibly used so I guess there will be less concerned let's say to leave this pillar to measure to the micro supervisors but I agree here that if you are using macro stress test top down ones to calibrate this pillar 2 it's like macro-prudential 2 so maybe the question is a bit different maybe we can maybe we should use in context of calibrating this type of the measures bottom up process taking into account the risk of portfolio of individual institutions and then by applying this top down macro stress test give the macro-prudential authorities to top up more the buffers in where this is needed of course this is a proposal to be thought over but I think that maybe we can do this way thank you anyone in the panel wants to comment on this pillar 2 thing I mean the logic of what we put forward was that pillar 2 is bang specific and therefore you know we have to be logical and using a macro stress test to apply this across the system is not so I mean I'm not against using some bang specific measure to boost the pillar 2 then it's pillar 2 and that's it our problem was that people were using pillar 2 which are bang specific measures for the system as a whole we are aware of the arguments that people want flexibility in other areas that's all been taken into account I just use this to show that there's a degree of sensitivity to trade off between their flexibility at national level and what we control just to come back on Paul's point about because they're kind of linked in a sense in a sense the way we put together the ESRB we would have given LTV to the ESRB because we would have assumed governments would not have wanted to do it so we're back in this world of independent organisations but I think because of these distribution effects now that we review it there has to be a way of these are important distribution issues so there has to be a way of making these decisions somehow transparent and accountable so either it's done through the independent body being more accountable or we have the I don't want to say the political side because it's not necessarily political but it's a treasury side somehow more involved now I think in the United States we have two extremes the FSOC put the treasury in the chair we put them in the corner basically now we have to see if there's a sort of middle way where or if not then we have to go the other route which is to see how we make more accountable these independent macro potential agencies more transparent and more accountable that's how I see it in our opinion we have supported this idea of dedicating its initial logic which was to cater for idiosyncratic risks of individual institutions and separate that from other measures taken in the name of macro problems for the system but I know that both Sharon and Fernando want to also say something about these questions please Sharon I was going to go back to the issue of accountability and who has the responsibility as I mentioned in my remarks the measures in Ireland were subject to intense public debate political debate, the media a very significant amount of scrutiny from the time we mooted introducing them through public consultation and I think this has been an important element of why the bank has tried to be so transparent about the work so firstly an important dimension was giving responsibility to the central bank as an initiative of the measures to very clear about what we mean by having evidence about the measures are they being effective what side effects are they having we've published very extensively on that and we have tried also from a communications perspective to engage regularly around what we're doing the Irish's experience also underlines the fact that in Europe there are totally different choices there are several countries that have given these instruments no agency as the independent power to use these instruments so there are all sorts of institutional arrangements Fernando please and it's in the context of redistribution but also transparency and accountability it's a very specific question I just wondered if you could comment on the action that was taken right at the end of December last year by the central bank of Portugal which took five privacy bonds out of more than 50 and transferred them from a good bank into a bad bank which effectively wiped out the shareholders in those bonds and transferred the assets to the ones remaining in the good bank we think that the action was founded on the assumption that the bonds were high denomination and therefore institutional but in reality the end investors in those bonds investors investing in mutual funds and pension funds the assets are just aggregated and invested by a large intermediary acting on their base on their behalf as an agent so I just wondered if you could comment on that the details on the situation are preferable I'm not sure any other question well I conclude that there are no other interventions and I understand let me say just as a final remark on all these you should not to have to fulfill is that we use our models to calculate the spillovers to other neighboring countries of measures taken by a particular country and that we then share that and discuss that in our financial stability committee so it's another important role of coordination by analyzing these spillovers but I stop here and that's the end also of our conference I want to again thank all the speakers and the discussants to have accepted our questions to be here particularly if I may I would like to thank the strong representation that we had this year from the other side of the Atlantic and perhaps I could also start saying from the other side of the channel but that would be already perhaps premature but indeed we appreciated that strong representation came this time from the U.S. and with great contributions to our debates let me also thank the organizers of all the conference Clémence Benamar, Monica Bermudez, Silke Keuler and Maria Eudena who were indeed very active in organizing all the aspects of the conference that went very smoothly and finally we already have decided the dates of the next year's conference and so please reserve in your calendars that we will have our annual conference next year on the 17th and 18th of May and everyone here is already invited to come so thank you very much