a financial crisis. a lowering of the policy interest rate would - under such conditions - provide no stimulus to the economy. second, as one of the classical functions of a central bank is to extend emergency liquidity assistance, central banks need adequate information not only on financial markets in general but also on individual institutions. as monetary stability might be affected when a big player gets into difficulties, central banks should be in a position to form a view if a certain institution is illiquid or insolvent, and if the latter is the case, whether this institution is of systemic importance or not. an additional challenge here is that institutions outside the supervisory umbrella - such as hedge funds - tend to grow significantly. moreover, the growth of financial markets in general and the growing importance of financial conglomerates in particular go hand in hand with a greater opaqueness of the size and distribution of risks. this puts additional demands on the analytical capacity of those concerned with financial stability. third, with financial liberalization, asset price and credit cycles may have become more prominent and suggestions have been made that monetary authorities should react to this cycle, for instance by raising interest rates when stock markets are clearly overvalued. central banks may thus have an interest to contribute to the discussion of prudential rules, which could contribute to a dampening of the asset cycle. prudential rules, and not interest rate changes, are there to safeguard financial stability. this is not to deny a role for asset prices in the monetary policy strategy. in the context of the ecb ’ s monetary strategy they are monitored to draw conclusions about future price developments, but there is no reaction to movements on financial markets as such. as the priorities within the eurosystem are clear there is no risk that the central bank loses sight of its primary goal of price stability for fear of a negative reaction of the stock market. ladies and gentlemen, to shield the real economy as far as possible from financial instability and prevent instability in the first place, continued adaptation of public policy to the changing financial landscape is required. to keep monetary policy effective, a smooth functioning of a diversified financial system is also in the interest of central banks. monetary policy can contribute to financial stability by keeping expectations about future inflation as low as possible and thus reducing inflation risk premia to a minimum. even when monetary policy cannot eliminate excessive risk - taking and speculation it can at least try to avoid fueling it. let me conclude by saying that we must never lose sight of why we

##iberations, to be released in the next weeks, and i will have the honor to give a lecture on this topic at the university of cambridge tomorrow. now, let me turn to the last topic of my speech today, which is also another project my staff is currently looking at in more detail and where a lot of optimism is required : 3. fostering the capital markets union in the eu 3 / 5 bis - central bankers'speeches as we have seen, the growth outlook in europe is not especially bright. even more, looking at productivity developments, we are seeing that europe is increasingly lagging behind, for instance when compared to the us. also, taking a longer run view : long - run productivity growth and innovation – as e. g. measured by patents or expenditure on r & d – are lagging behind on the continent as compared to the us but also – even if not as starkly – in contrast to the uk. a major reason for this might be the fact that the development of the capital market is substantially lagging behind in europe : market capitalization is significantly lower in the eu than in the us and the uk, and fragmentation is excessive. in fact, market capitalization in europe is so fragmented that it already is burdensome just to quantify it at an aggregate level. further, the market for corporate bonds is only a fraction of that in anglo - saxon economies, and firms in many europeaeconomies are excessively dependent on banks. the low market capitalization in the eu also hinges on a limited pool of private capital, such as large - scale investment and pension funds that might be interested in investing in risk capital markets. even more problematic for the growth potential of the european economy is the lack of venture capital. currently, even in the best - performing european economies, venture capital as a share of gdp only corresponds to half of the level available in the us, and as an aggregate, the euro area vastly underperforms compared to the us and also the uk in this regard. as an example, the uk has developed a very successful model for growth capital – the bgf – which is supporting innovative growth companies with patient capital. we know from empirical evidence that deep capital markets are conducive to growth in countries with sound democratic institutions like the eu. this calls for more action to deepen capital markets. importantly, it should be noted that deep capital markets can also help in the provision of the urgently needed capital to finance the green and