for banks in terms of public risk - sharing is not yet clear, not least for deposit guarantee schemes. second, the euro area is not yet fully treated as a single jurisdiction for the purposes of bank regulation and supervision, which creates barriers to cross - border activity. the latter means, for example, that cross - border euro area exposures are still considered as international exposures from a regulatory perspective, which may lead to additional capital charges for systemically important banks. banking groups seeking to optimise their liquidity and capital within the euro area also face frictions to fungibility, be it liquidity waivers or requirements to relocate staff if different parts of the balance sheet are reshuffled among subsidiaries. all this reduces the gains to operating as european banks. what i would ideally like to see – as a monetary policymaker – is a banking union that allows banks to operate as truly european entities, and banks taking advantage of the cost - cutting opportunities this provides. this would guarantee a healthier, more profitable sector that can transmit our monetary policy smoothly to the real economy across the cycle. and it would increase macroeconomic risk - sharing, leading to a more resilient monetary union. the extent to which we are able to achieve such a new banking landscape is, in my view, the litmus test of whether we have completed a genuine banking union. looking forward faced with a prolonged crisis, the ecb ’ s unconventional policy measures have been essential to provide additional accommodation to the economy and prevent a self - sustaining fall in inflation – 7 / 8 bis central bankers'speeches and they have been a clear success. easier credit conditions have fed into a domestic demandled recovery that has spread across countries and sectors. the economic outlook today is now better than it has been for many years. this assessment was confirmed by the governing council at its last monetary policy meeting. compared with our previous forecast round in december, we are now more confident in the outlook, which is reflected in both the upward revision to the growth path and the upward shift in the balance of risks surrounding that path. accordingly, we are no longer concerned about deflation risks, which is why the reference to “ act [ ing ] by using all the instruments available within its mandate ” was removed from the introductory statement. we no longer perceive a sense of urgency to take further measures to combat adverse tail risks. nevertheless, in important ways our assessment remains unchanged. the economic risks, though becoming less pronounced, remain tilted to the downside.

less on adjusting its main refinancing rate, and more on directly influencing the whole constellation of interest rates in the economy that are relevant for private sector financing conditions. this strategy has been articulated in three instruments. the first is the negative interest rate on our deposit facility, which – in a context of excess reserves – has brought overnight rates down to negative levels and hence provided additional effective stimulus. the fact that policy rates can indeed turn negative has also contributed to flattening the short to medium end of the yield curve, thereby easing broader financing conditions by removing the upward bias to yields that comes from the perception that rates can only go up, not down. the second instrument is the asset purchase programme ( app ) of private and public sector securities, which has helped further depress the term structure of interest rates by compressing risk premia out along the yield curve. this effect takes place directly in the market segments where we intervene, namely covered bonds, asset - backed securities ( abs ), sovereign and corporate bonds. and higher asset prices spill over, through portfolio rebalancing, into nontargeted markets as investors move up the risk and maturity ladder. importantly, the stimulus from these two instruments reaches the economy independently of 3 / 8 bis central bankers'speeches whether financing is dominated by banks or capital markets. a broad easing of financial conditions leads to lower funding costs for banks, while asset purchases depress the pricing kernels used in each country to price local credit, in particular the risk - free yield curve. both lead to lower interest rates for borrowers. at the same time, as asset prices rise banks have a stronger incentive to provide loans to the real economy in the first place. indeed, banks operate on the basis of the same relative - value logic as non - bank market participants : a decline in fixed - income securities earnings encourages banks into the same type of portfolio reallocations that affect investors in the capital market, rebalancing their portfolios towards assets with higher risk - adjusted returns, including loans. and this also applies to the excess cash reserves that are created as result of our asset purchases, where the incentive to invest in higher - yielding assets is intensified by our negative rate policy. the third instrument is our targeted longer - term refinancing operations ( tltros ), which are specifically aimed at galvanising bank lending to the private sector in a context of ongoing bank deleveraging. banks have been able to borrow at the interest