*  *  *  The effectiveness of monetary policy in the euro area depends on a well-functioning banking sector. Different to other advanced economies, the transmission of our policy impulses operates predominantly through the bank lending channel. This means that, as monetary policymakers, we have to pay particular attention to developments in the banking system. Indeed, since 2008 many of our policy measures have been focused precisely on addressing blockages in bank intermediation, ranging from short-term liquidity to longer-term funding. In recent years, other European policymakers have joined the ECB in this effort to repair the bank lending channel. In several vulnerable countries there has been a far-reaching restructuring and recapitalisation of the banking sector. And at the European level, policymakers agreed to establish Banking Union, the opening act of which was the ECB’s Comprehensive Assessment of euro area banks’ balance sheets. What I would like to focus on today is what these efforts have achieved so far – and what still needs to be done to fix the bank lending channel sustainably. Credit at a turning point There are several factors that indicate credit dynamics in the euro area have now reached a turning point. First, credit data have improved over recent months, albeit from low levels. The annual growth rate in bank loans to households again increased in September to 0.6% – twice the average growth rate recorded last year. 1 Bank lending to firms has continued to contract but the decline is bottoming out.

First, physical risks from climate change itself – such as physical damage to properties and assets, disruption to supply chains, production stoppages, and reduced agricultural yields. They will reduce growth and push prices higher. Second, transition risks from government policies, technological advances, and shifts in demand patterns aimed at mitigating climate change and promoting sustainability. For example, the introduction of carbon pricing will change the earnings profiles of businesses, favouring firms and industries with cleaner technologies and lower carbon emissions relative to more carbon-intensive firms and industries. The effects of climate change on the global economy and asset markets are hard to predict. First, there are inherent uncertainties in modelling climate outcomes and in assessing its impact on the global economy. This is due to the limited usefulness of historical data, potential non-linearities and tipping points in climate systems, and the long horizons over which climate change materialises. Second, there is uncertainty regarding technological developments and policy responses. The transition pathways that we take depend critically on how various green technologies advance and how cost-effective these technologies are. Climate policy is in turn contingent on these uncertain technological developments. A key dimension that asset managers will need to build into their portfolios is climate resilience. They need to ask some searching questions. How will climate change affect the businesses that the portfolio is invested in? Which are the firms in the portfolio that have not made credible efforts to decarbonise their operations?