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Introduction "The paper by Martin Hellwig [presented to the same Seminar at which this paper was presented] makes clear the many unresolved issues that surround macroprudential policy. What kind of systemic risk is it supposed to mitigate? Is the issue financial stability or macroeconomic stability, a distinction that may be especially important in a downturn of the economy? How do we assess systemic risk exposure? How can we establish the degree of commitment needed to ensure that policies are implemented in a timely fashion to prevent the build-up of excessive risks? What is the relation between macroprudential and microprudential supervision? How should we think about the trade-offs involved in forbearance by banks in a situation of stress? These are many important questions that we do not really have good answers to yet. Notwithstanding these uncertainties, we have to start making policy in this area. The legal basis and institutional framework for pursuing macroprudential policy are now in place, or in the process of being put in place, in many countries. So policies will be made, irrespective of whether all the relevant effects are fully understood. Under these circumstances, we need to find some principles for making sure that the policies undertaken do more good than harm. At a general level, this involves identifying policies that directly affect sources of systemic risks without having strong undesirable side effects. To go some way towards this, it can be instructive to try to identify what this policy area can achieve that other policy areas cannot."

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