I said some time ago that markets had an excessive negative perception of European banks. In fact, euro area bank share prices, as well as price-to-book ratios, have been rising in recent months in part in anticipation of the assessment. This would suggest that investors expect the clarity provided by the exercise to be clearly positive for the euro area banking sector. Regarding the response to the exercise, if some capital shortfalls are revealed, the private sector is today in a position to play a major part in filling them. This is more feasible than in recent years given the improvement in market conditions. Indeed, since last year banks have been improving the robustness of their balance sheets by increasing capital and provisions in anticipation of our comprehensive assessment. In this sense, the exercise is already producing results – and it indicates the willingness of banks to resolve existing problems within the sector itself. In the same vein, given the number and size of European banks, there is scope for some consolidation within the banking sector without reinforcing the so-called “too-big-to-fail” problem. Our recent “Banking Structures Report” shows that this trend is already ongoing in Europe. Nevertheless, as a last resort, confirming the existence of public backstops is important to reassure all stakeholders of the credibility of the whole assessment exercise. Conclusion Let me conclude. Although various explanations exist for the crisis, I am pleased that what I view as one of its important lessons is now being learned.

BIS central bankers’ speeches  3  We do not need to run a counter-factual experiment to determine the macro-prudential responses to these emerging pressures. A number of countries have already taken preventative macro-prudential action to forestall excessive risk-taking (Table 2). These measures are intended to forestall too rapid an accumulation of credit. In short, macroprudential stringency is seeking to counteract any adverse risk-taking consequences of loose monetary policy. In the UK, the Bank of England’s Monetary Policy Committee (MPC) has been pursuing a policy of extra-ordinary monetary accommodation. Recently, there have been signs of renewed risk-taking in some asset markets, including the housing market. The MPC’s macroprudential sister committee, the Financial Policy Committee (FPC), has been tasked with countering these risks. Through this dual committee structure, the joint needs of the economy and financial system are hopefully being satisfied. Some have suggested that having monetary and macro-prudential policy act in opposite directions – one loose, the other tight – somehow puts the two in conflict [De Paoli and Paustian, 2013]. That is odd. The right mix of monetary and macro-prudential measures depends on the state of the economy and the financial system. In the current environment in many advanced economies – sluggish growth but advancing risk-taking – it seems like precisely the right mix. And, of course, it is a mix that is only possible if policy is ambidextrous. To underscore this point, Chart 12 plots a scatter of counter-factual Taylor and Minsky rules in the UK over the period 1964 to 2011.