scale of its operations on the financial system. our regulatory approach towards nbfc sector has been guided by a combination of activity - based and entity - based regulations to safeguard financial stability and protect customers. we have tried to leverage the strengths of both these approaches to achieve a more comprehensive and flexible regulatory framework. we find this hybrid approach particularly valuable for an everevolving nbfc sector, where innovations and new business models seem to be constantly emerging. entity based regulations have the advantage of providing a comprehensive view of overall risk exposure of a specific financial institution and is better placed to address the systemic risks arising from the interplay of various activities within a single entity to minimise negative externalities. from regulator's perspective, entity - based regulations are generally easier to implement and enforce, as regulations are applied uniformly to a set of entities. however, the flip side is that entity - based regulations may be less precise in targeting specific activities, slower to adapt to changing landscape, and, at times, may potentially impose extra burden on low - risk activities. on the other hand, activity - based regulations allow for more precise targeting of potentially risky financial activities by enabling the regulators to focus on high - risk activities regardless of the type of institution involved. potential down - side is that such an approach could result in a fragmented regulatory landscape, with different rules for various activities, potentially making oversight more complex. at times, systemic risks arising from the combination of multiple activities may remain undetected. it has been advocated that ideally, the principle of same risk, same activity, same regulation should apply, i. e, there should be similar regulation for entities undertaking similar activity to avoid regulatory arbitrage. as the saying goes - if it looks like a duck, quacks like a duck, and acts like a duck, then it probably is a duck - and should be regulated as a duck. however, this approach needs to be calibrated suitably for effective yet non - stifling regulations. instead of following a narrow approach of putting in place the same set of regulations for all financial institutions irrespective of their scale of operations, a nuanced approach may be more suitable for achieving the desired objectives. we have been cognizant of the fact that the nbfcs engage in specialised activities, each carrying its unique risks, and the flexibility inherent in the hybrid model has enabled us to adapt swiftly to the changes in the sector without sacrificing the overarching

inflation, the ecb raised its policy rates at an unprecedented pace ( + 350 bp since july 2022 ) to reach a restrictive stance. page 3 sur 7 but from now on, we are entering a new, more open phase of monetary policy ; we are shifting from automatic pilot to navigation by instruments. what does that mean in practice? our decisions on interest rates will be taken meeting by meeting. this navigation by instruments will especially rely on three cockpit dials : • the outlook for headline inflation, based on our macroeconomic projections. • the dynamics of underlying inflation. in my view, a turnaround in the trajectory of underlying inflation – be it actual or expected with sufficient certainty –, should be a trigger for stabilising our rates. i page 4 sur 7 • the strength of the transmission of our policy measures, or in other words the extent to which the “ plumbing ” of monetary policy is effective, and fast : from what is still in the pipe, to the ultimate and concrete impact on economic activity and prices. it takes some time – usually about one or two years – for monetary decisions to take full effect. there has been some debate recently in the united states on whether this lag is shorter or longer under the current conditions : but let us acknowledge we don ’ t know enough on this issue, and need to dig further. let me accordingly sum up where we are in our ecb monetary policy : we may possibly still have a little way to go on rate hikes at our next meetings, though i think it premature to decide now what we will do in may, but we have already completed most of our rate - hiking journey and the strongest economic effect ahead of us will be the pass - through of what is already in the pipe. in other words, the deferred effect of our past rate hikes will be more significant than the one of our future decisions. and it will be key to then stay the course for as long as necessary. to put it differently, the sprint is over giving way to a more long distance run. and, for interest rates as with ballistics, “ longer ” is becoming more significant than “ higher. ” b. separation of price stability and financial stability the two recent crises that engulfed svb and credit suisse have shaken investor confidence and sparked increased volatility on financial markets – including speculative behaviour. however, we at the ecb are confident in the resilience of the european banking system, as signalled by the