low inflation risks dragging down inflation expectations which, in turn, further impairs the capacity of central banks to quickly restore inflation to the target. it is therefore important for the central bank to be agile, energetic and persistent in responding to prolonged inflation undershoots. otherwise, complacency and inaction bias would damage the capacity of the central bank to address future negative macroeconomic shocks, putting medium - term price stability at risk. this vicious circle has been recognised by economists at least since keynes and others studied the interactions between deflation, mass unemployment and a paralysed monetary policy in the 1930s. the lessons from this period and the more recent experience of prolonged deflation in japan have encouraged the adoption of monetary policy strategies worldwide that seek to deliver sufficiently positive medium - term inflation rates, given the macroeconomic risks associated with excessively - low inflation and deflation. the contribution of non - standard measures to monetary policy capacity the use of non - standard measures to augment monetary policy capacity has been widespread across central banks in recent years. the ecb ’ s current configuration is based on a broad set of non - standard tools that reinforce each other : ( i ) the negative policy rate ; ( ii ) forward guidance ; ( iii ) the asset purchase programme ( app ) by which the eurosystem buys both sovereign and private debt securities ; and ( iv ) targeted long - term refinancing operations ( tltros ) for banks. bringing the policy interest rate to negative levels extends the scope to influence short - term funding conditions and also longer - maturity elements in the yield curve. in fact, since 2014 we have seen that rate reductions in negative territory propagate in qualitatively different ways than rate reductions implemented at positive levels. a cut below zero demonstrates that the central bank is not mechanically constrained by a zero lower bound. accordingly, if used in combination with appropriate forward guidance, a negative rate policy can provide a more effective way of controlling interest rates at maturities that are particularly influential in determining financial conditions in the euro area. if a central bank cuts its policy rate to zero but excludes moving into negative territory, the distribution of expectations of future interest rates becomes skewed. market participants view interest rates as much more likely to increase than to decline further. as a result, interest rates at longer maturities tend to decline by less than the adjustment to the policy rate. if future cuts are possible in the context of a negative rate policy, the overall probability distribution

. the application should not become a vehicle for comprehensively evaluating and addressing supervisory and compliance issues at the applicant organization. this principle is also the basis for recent congressional action to eliminate the prior approval requirement for engaging in board - approved nonbanking activities under section 4 of the bank holding company act, provided the company meets specified standards for capital and management at the time of its last examination. as a result, the board has significantly streamlined the process for well - capitalized, well - run companies to acquire a bank or nonbank and eliminated the prior approval process for such companies to engage de novo in board - approved nonbanking activities. second, the board concluded that bank holding companies should be permitted to conduct nonbanking activities to the fullest extent permissible under the bank holding company act, and that regulation y should be sufficiently flexible to allow for industry changes in permissible activities without requiring additional regulatory filings. accordingly, the board removed restrictions on investment advisory activities, derivatives trading activities, leasing, and other activities whenever those restrictions impeded efficiency or imposed costs without conferring corresponding benefits to safety and soundness. the board also permitted a data processing or management consulting subsidiary to derive up to 30 percent of its revenue from nonfinancial data processing or nonfinancial management consulting. and the board has indicated that it will be pro - active in approving new activities. the next area where the board has been particularly active concerns firewalls between a bank and an affiliated securities firm, better known as a section 20 affiliate. experience with these section 20 affiliates, and other affiliates engaging in similar activities without such restrictions, led the board to conduct a comprehensive review of the firewalls. much of the potential for conflicts of interest between a bank and a securities firm is addressed by other laws such as the registration and disclosure requirements and the anti - fraud provisions of the securities laws. legislative and regulatory enactments, many adopted since the board ’ s initial 1987 section 20 order, also provide important insulation between a bank and a section 20 affiliate by imposing qualitative and quantitative limits on inter - affiliate transactions and requiring that a customer receive disclosures detailing the identity of its counterparty and the product being purchased. accordingly, the board has repealed its restriction on cross - marketing between a bank and a section 20 affiliate, eliminated a blanket restriction on employee interlocks, and scaled back a blanket restriction on officer interlocks to include only a chief executive officer. the board has also proposed to eliminate