loan officers may sometimes ignore valuable private information in order to mimic others when their own evaluation, their own remuneration or their own external reputation depends on their performance relative to the rest of the market. 9 this behaviour is individually rational but socially wasteful. here at the university of cambridge, the famous analogy that john maynard keynes made between newspaper beauty contests and financial market behaviour comes to mind. 10 i am also convinced that one of the main reasons behind herd behaviour in financial markets in general, particularly in times of crisis, is a lack of transparency. the fostering of transparency as concerns financial institutions, financial markets and financial products is therefore one essential policy lesson from the present crisis. our latest experience with systemic risk let me now apply the relevant elements of this framework on how to think about systemic risk to the present crisis. a particularly relevant source of systemic risk was the build - up of widespread financial imbalances – the second form of systemic risk i described – in the period of 2003 to 2007. the years prior to 2007 were characterised by low financial market volatility and risk premia, rapid financial innovation in credit markets, low interest rates across the maturity spectrum and ample liquidity conditions. in particular, rapid financial innovation led to securitisation techniques with thus far unknown complexities and to long and uncontrollable chains of intermediaries between originators and final investors. ratings agencies gained global power as the pricing of securitisation tranches was largely based on their assessment, while leverage mounted ever higher and a shadow banking system developed up largely unregulated. for a recent example, see o. castren and i. kavonius ( 2009 ), who study non - linear adjustments in a riskbased network of exposures based on euro area flow of funds data ( “ balance sheet interlinkages and macrofinancial risk analysis in the euro area ”, ecb working paper, no. 1124, december ). scharfstein, d., and j. stein ( 1990 ), “ herd behaviour and investment ”, american economic review. he noted that competitors did not have to pick “ those faces, which he himself finds prettiest, but those that he thinks likeliest to catch the fancy of the other competitors ” ( keynes, j. m. ( 1936 ), “ the general theory of employment, interest and money ”, macmillan cambridge university press ). at the same time, mark - to - market accounting rules

yves mersch : monetary policy in the euro area - a brief assessment speaking points by mr yves mersch, member of the executive board of the european central bank, at the mni connect roundtable, singapore, 10 october 2018. * * * the euro area economy is currently experiencing a broad - based economic expansion. although growth moderated somewhat in the first half of this year, following several strong quarters in 2017, we expect the expansion to continue at a pace slightly above potential in the period ahead. at the same time, risks relating to increased global protectionism and vulnerabilities in emerging markets warrant continued monitoring. monetary policy measures introduced since 2014 have been pivotal to these developments. they have set - in - train a return of euro area inflation to a rate below, but close to, 2 % over the medium term. real gdp expanded by 0. 4 % quarter on quarter in the second quarter of 2018 – the 21st consecutive quarter of positive growth – with the level of real gdp 10 % above the trough. while the external environment is less favourable, the underlying strength of the euro area economy is expected to persist on account of strong domestic demand dynamics. this ongoing expansion has led to strong employment gains. there are now 9. 2 million more people employed in the euro area than at the low - point in mid - 2013 and the unemployment rate is at its lowest level for almost a decade. the investment outlook also continues to strengthen and is supported by an ongoing need to modernise the capital stock after years of subdued investment, as well as by very favourable financing conditions, an improvement in profitability and solid demand. since we announced our policy measures in june 2014, financial conditions have eased considerably. lending rates for non financial corporations and households have dropped by around 130 basis points and 110 basis points, respectively. rates on very small loans, which can be taken as a proxy for loans to small and medium sized enterprises ( smes ) have declined by more than 210 basis points. heterogeneity of lending rates across countries has also fallen sharply, which indicates that the pass - through of our monetary policy has become more even. at the same time, loans to euro area households and firms continue to remain favourable with annual growth of 3. 1 % and 4. 2 % in august 2018, respectively. this pick up in credit growth has not led to a crowding out of other forms of external finance for euro area nfcs, with firms continuing to issue new equity. overall, this