legislative reforms ; ( b ) the requirement that institutions have resolution plans in place ; ( c ) assessment of the effective resolution ability of the authorities of the respective crisis management groups ; and ( d ) the need for institutions to have the loss - absorbing capacity or funds to ensure that, in a situation of resolution, it can be carried out “ from within ”, i. e. without need for capital injections by the relevant authorities and without destabilising the financial system as a whole. allow me to take a moment to talk about loss - absorbing capacity in resolution, or total lossabsorbing capacity ( tlac ). on 10 november the fsb published a proposal on the tlac requirement to be met by systemically important banks, the final design of which is scheduled for the end of 2015. the consultative process of the tlac proposal will be conducted in parallel with an impact study which will include ( i ) an analysis of the tlac needs for each institution which may have to be resolved ; ( ii ) a survey to assess the depth of the market in each jurisdiction bis central bankers ’ speeches involved ; ( iii ) an analysis of the historical losses incurred by global systemic banks at the height of the crisis ; and ( iv ) an assessment of the economic impact of the proposal, both at institution level and as to how it will affect the supply of credit. the difference from the basel requirements lies in the instruments eligible for meeting the new requirement. thus, in addition to all the equity instruments envisaged under basel, the proposal permits, and in fact requires, the inclusion of debt instruments, generally subordinated debt instruments. experience shows that capital may disappear in a crisis, and quickly so. the authorities must, therefore, have debt and equity instruments which ( through debt reduction and / or conversion into equity instruments ) allow them to resolve and recapitalise institutions from within, without need for bail - out by the public authorities. will this be the end of the reforms? i think not, at least as far as other financial sectors are concerned. the considerably higher prudential requirements on banks naturally cause some credit intermediation to shift to other financial sectors, in a phenomenon commonly known as “ shadow banking ”. the fsb has set in train two courses of action to prevent an excessive concentration of banking risk off the balance sheets of banks : first, it monitors their size, activities and risk characteristics ; and second, it is working on the introduction

luis m linde : monetary policy – current situation and challenges closing remarks by mr luis m linde, governor of the bank of spain, at the launch of the yearbook “ anuario del euro 2014 ” / fundacion de estudios financieros - fundacion ico, madrid, 28 january 2015. * * * firstly, i would like to thank irene garrido, chairwoman of ico, fernando fernandez and juan carlos ureta for kindly inviting me to attend the launch of this new edition of the anuario del euro. i will begin by reviewing the current economic situation in the euro area and the measures adopted by the european central bank. then i will go on to briefly comment on the leeway available to monetary policy in a context of very low inflation rates, and conclude by saying something about the different position in the monetary policy cycle of the main developed economies. the economic situation in the euro area and the ecb ’ s monetary policy the euro area ’ s economy is in a situation of weakness, with overall expected growth of 0. 8 % for 2014. after remaining fairly dynamic in first quarter of 2014, gdp grew only modestly in the following two quarters, and according to available forecasts, the path of recovery, both in the short and medium term, will be fragile, with disparities between countries. according to the european central bank ’ s projections, in line with the consensus, 2015 and 2016 will see growth of 1 % and 1. 5 %, respectively. these rates are not only modest, but are also subject to certain risks, which, on balance, point to even lower increases in economic activity. turning to prices, for some months now inflation has been well short of the 2 % benchmark, which is the ecb ’ s medium - term monetary policy target. the forecasts available continue to point to the risk of inflation remaining too low for too long. the ecb ’ s latest projections entail a further downward revision, with inflation expected to stand at 0. 7 % in 2015 and 1. 3 % in 2016. in recent months, against a background in which, given the weakness of demand and fierce competition, firms have limited price - setting power, the slump in the price of oil has exacerbated the drop in inflation. at the end of 2014, the annual rate of inflation stood at – 0. 2 % ( the average rate in 2014 was + 0. 4 % ) and it is