had to backstop certain markets. secondly, covid infection rates are on the rise again in many countries. restrictive measures have been re - introduced, and uncertainty is increasing. this is bad news for the economy. the fiscal and monetary stimulus packages have until now cushioned part of the blow. but as the economic slump drags on, firms and households will start feeling the impact more and more. in such an environment, insolvency rates will increase. that ’ s simply inevitable. that means that banks, while having initially done well, are going to take hits to their loan books. unfortunately, this happens while the banking sector in at least some countries in europe is still struggling with npls from the previous crisis. how big the hit will be is still very uncertain. yet it would be wise for both policymakers and banks to brace for impact. if this is the case, what should policymakers do now? in the short term, i think it ’ s important governments and central banks continue to support the real economy as long as necessary. it is inevitable and only right that this support will be gradually halted. but now is not the time to phase out the fiscal and monetary stimulus. where possible, fiscal policy should move from general support to more targeted investment, aimed at supporting the transition to a carbon - neutral economy and digitization. next, supervisors should continue to give room to the banks to use their capital buffers. capital buffers are the airbags of the financial system and we should use them in a crisis. that is after all what they are there for. of course, the dilemma is : how much? here we have to weigh the need to cushion the current blow against the need to also be ready for future headwinds. what can the financial sector do? focusing here on banking for a moment, i would say : do what you normally do. ensure credit keeps flowing to the real economy. make use of the available headroom to do so. make sure capitalization remains at prudent levels. and very important : keep a keen eye to risks and asset quality. now this may sound like the basics of banking. but i recognize it is hard to stick to the basics in these increasingly challenging circumstances. as more firms face mounting financial troubles, banks will need to re - focus on the long - term viability of their corporate customers. sometimes debt restructuring may be part of the solution. government support and low interest rates may provide a helping environment here

steven maijoor : into the unknown - decision - making in uncertain times speech by mr steven maijoor, executive director of supervision of the netherlands bank, at the banking seminar in the amsterdam hermitage, amsterdam, 10 november 2022. * * * hello everyone. for years, this museum showcased paintings and sculptures from the expansive collection of the hermitage in saint petersburg. on march 3rd, 2022, one week after russia's invasion of ukraine, the amsterdam hermitage decided to end that cooperation. unexpectedly, world events interfered with the museum's course of action. unexpectedly, the museum had to deal with a scenario it did not foresee. and unexpectedly, the museum's future became clouded by uncertainties. we, as policy - makers, supervisors and banking professionals, are used to dealing with uncertainty. over the years, we have developed methods, models and measures to deal with it. to a large extent, our institutions, frameworks and decision - making, either implicitly or explicitly, rely on stochastic models. and we know that every model comes with limitations and assumptions. and that we should be aware of them. because in these limitations and assumptions lie potential risks. risks that lie beyond the models'perimeter. today, just like this museum, we are faced with an unexpected level of uncertainty. so today, we find ourselves dealing with factors that lie beyond our models'perimeter. we do not have a straightforward scenario to deal with the extraordinary inflation shock, sharply higher interest rates, and the significant slowdown of economic growth. today, it is hard to predict where risks will manifest and materialise. but no matter how uncertain the future economic conditions are, at this point it is fair to say that banks'net interest income and credit losses will be affected. first, a word about net interest income. with the tightening stance of the ecb, the federal reserve, and other central banks, we see market rates rising. the banking sector may welcome this structural shift in the interest rate environment. the challenges of running a bank in an environment with a flat yield curve, negative interest rates, and fierce yield competition, have finally eased. we have observed the positive effects of the ecb's tightening stance on interest rate margins as deposit rates have remained around zero percent and lending rates have increased in parallel with market rates. case in point : the annual growth of net interest income accelerated to thirteen percent in the second quarter of 2022, from five percent in the first quarter