that external shocks, like the ones we are experiencing today, might take time to fully materialise. we learned this from the two oil crises in the 1970s. the oil shocks in 1973 and 1979 led to an increase in banking provisions that only peaked in 1983. and those provisions were even higher than the provisions during the great financial crisis. 2 / 4 bis - central bankers'speeches so when and how the current inflationary shocks will have fully rippled through our economy is highly unpredictable. this will also depend on the fiscal and monetary policy response, and whether or not the geopolitical situation deteriorates further. so now that we find ourselves beyond our models'perimeter and without a straightforward scenario at hand, how do we go forward? what can guide our decisions? i suggest three " lines of defence " : first, in order to enhance banks'resilience, the implementation of basel iii in europe should continue without delay and with as little deviation as possible. one of the cornerstones of the basel iii reform is the introduction of the output floor, which is designed to reduce model risk. in this specific case, model risk is the risk that a bank's internal models incorrectly estimate the bank's capital requirements. for banks, the output floor will put a limit on the reliance on stochastic scenarios and increase their resilience. on this matter, i fully support the strong plea from the ecb and the eba to faithfully implement basel iii. 2 second, for banks to be able to determine their course of action and assess and mitigate risks, they need a thorough understanding of their exposures and of how the current challenges might impact their portfolios and financial positions. this starts with good data of high quality and extensive insight into their customers'financial positions – not only at the start of a contract, but also throughout. that is why we put pressure on banks to improve their data quality, and to properly aggregate and report on their data. third, whatever scenario banks eventually follow, it is crucial to maintain a healthy capital position. as i briefly illustrated with the oil crises, many of the risks of the current circumstances may only materialise down the road. the economic and financial situation in which banks took on risks on their balance sheets in the past years has fundamentally and abruptly changed. this makes it very unlikely that the scenarios used then still align with the world of today. this is why we are asking banks to be prudent with dividend payouts and share

buybacks, and to take into account the potential increase in credit losses, and other risks, and what this might mean for their capital position. that being said, i fully recognise the importance of access to the capital markets for banks and the role played by cash distributions. this is why, as a supervisor, i favour a careful, case - by - case approach when it comes to dividend payouts and share buybacks, especially taking into account the differences in each bank's vulnerability to downward economic pressures. banks are in a good starting position for these three " lines of defences ". over the last 15 years, banks have worked hard on improving their balance sheets, on cleaning up nonperforming loans, and on building up robust capital and liquidity buffers. consequently, they are well - equipped to weather the current uncertain and challenging times. with average cet1 ratios around 15 percent in europe, banks'capital ratios were at similar robust levels in the second quarter of this year as in the first quarter. moreover, their liquidity coverage ratio stood at 165 percent in the second quarter of 2022. 3 3 / 4 bis - central bankers'speeches and the single supervisory mechanism ( ssm ) has played a key role in this process of improving banks'balance sheets. the ssm has boosted the quality of supervision, internalised and addressed coordination problems between national banking supervisors, and centralised data reporting and information sharing. these advancements, which have contributed to the building of the european banking union, are also recognised in the revision of the basel buffer methodology for global systemically important banks. all of this has taken a tremendous amount of work. 15 years ago, the amsterdam hermitage was a care home – as it had been for a few centuries. after an impressive two - year renovation, the care home was transformed into the current state - of - the - art museum, which opened to the public in 2009. to remain the state - of - the - art museum that it is today, the amsterdam hermitage will need to be the opposite of what its name suggests. though it is called hermitage, it must avoid any kind of hermitic stance. the same goes for us. as banking supervisors, we cannot be hermits either. we must also face outwards, not inwards. we must also explore scenarios beyond the usual ones to weather the uncertain times. and no matter what way forward we choose, we must work together, within the ssm, and maintain an