And we have, of course, tried to assess the impact of the dramatic stock market decline from the peaks in 2000 on macroeconomic conditions and financial stability. In this regard, it mattered that, partly linked to the introduction of the euro, the outstanding amount of shares substantially increased in the euro area. For non-financial corporations in the euro area, the annual net issuance of shares increased from 1.7% of GDP in 1995 to 7.3% of GDP in 2000. At the same time, during the late 1990s, the distribution of shares across the euro area population broadened significantly, implying that more households invested in shares in the late 1990s than before. Corrected for valuation effects, the amount of household’s holdings of shares and mutual fund shares increased between 1995 and 2003 by 78%. Against this background, stock prices have become more relevant to economic conditions in the euro area in recent years. And indeed, when stock prices started to fall, we could see that this had a notable dampening effect on the euro area economy in the period 2001-2003. What role do asset prices play in the ECB’s monetary policy? After this description of the current situation, the crucial question is: how do asset price developments enter into the assessment of the outlook for price stability and how they influence the policy-formulation of the ECB. Recently, much attention has been devoted to the question of which monetary policy strategies are optimal in an environment of strong asset price fluctuations.

Such transformation will result in a shift in relative prices (away from carbon-based technology), influence the patterns of consumption and production (towards non-carbon, carbon-efficient, and carbon-capture technology), and redirect the financial resources to support the process. As I noted earlier, being a service industry, the financial sector will need to adapt by managing risk, developing supportive financial services, and exploring business opportunities. Both the threat and the opportunities that emerge will be a challenge for all segments of the financial system i.e. insurance, banking, and fund management. In this process, awareness, right incentive, and market mechanism will be key in determining the pace of change. Third, the financial sector can also be an agent of change, because of the three important roles it can play. Firstly, it can directly influence resource allocation by internalizing climate change in its core business decisions i.e. lending, investment, and fund management. Secondly, it can indirectly influence resource allocation by developing supportive financial services, markets, risk management and investment products that assist the adaptation process, for example, through the development of insurance products, weather derivatives, and “CAT”-bond, and also assist the mitigation process through trading of carbon credits and allowances. The scope for business opportunities on these two fronts are many, and are open for all segments of the financial system, ranging from commodities services to corporate finance, to investment banking, and retail banking. And thirdly, financial institutions can also engage climate change in its business agenda as part of the corporate social responsibility (CSR).