many to conclude that keeping inflation low, stable and predictable is the best contribution monetary policy can make to the economy. it sounds less ambitious than the preamble to the bank of canada act, but the results have been very powerful. nevertheless, the widespread belief that keeping inflation low and stable would keep the economy out of trouble proved to be misplaced. the global financial crisis laid bare the second important limitation of monetary policy : low inflation can still lead to a buildup of dangerous imbalances in the economy. in effect, prolonged economic and financial stability can lead to excessive risk - taking and rising leverage. regulatory complacency also played an important contributing role. imbalances can make the economy fragile. when a shock hits the economy, its effect can be amplified by these imbalances, and the central bank may have difficulty achieving its inflation target for some time. in other words, low and stable inflation may be necessary for sustainable economic growth, but it is not sufficient on its own. more on this later. the perils of low for long policy - makers, both monetary and fiscal, have worked extremely hard for more than a decade to nurse their economies back to health. by 2014, we appeared to be within a year of returning “ home ” — by which i mean the point where the economy is running at full capacity, with supply and demand in balance and inflation at target. when the economy is truly home, it can grow sustainably without policy stimulus. unfortunately, the economy hit a major setback late in 2014, when oil prices collapsed. the bank lowered its key policy interest rate twice in 2015, to a very stimulative level of 0. 5 per cent, to help the economy work through the shock of lower oil prices. the government also introduced new fiscal stimulus. over the next two to three years, the economy gradually made its way back home, absorbing excess capacity and seeing inflation return to target. in this context, the bank began withdrawing its extraordinary stimulus, raising interest rates by a total of 1. 25 percentage points, to 1. 75 per cent. but with that rate still lower than inflation, it is clear that monetary policy continues to deliver stimulus to the economy today. 2 / 6 bis central bankers'speeches indeed, monetary policy has been stimulating the economy for much longer than anyone expected when the crisis began back in 2008. and we have seen the natural results of leaving interest rates very low for a long time. for one thing, this

, we need to work on the fiscal and economic governance to make sure that economic integration doesn ’ t bring with it an increased risk of imbalances. completing the banking union with confidence - building measures instead of finalising the banking union to reap all its benefits, we have come to what seems to be a fork in the road, with some saying we should focus primarily on risk reduction, while others are emphasising the importance of risk sharing. both approaches have valid arguments, and i would argue that both paths can be followed at the same time. the advocates of risk reduction argue that the underlying vulnerabilities in the banking sector which triggered the crisis need to be forcefully tackled. in particular, there should be an assurance that the resources pooled at eu level in the banking union are not used to pay for the fallout of past policy mistakes. and we have made progress on that front : banks are now more resilient due to their increased levels and quality of capital and liquidity buffers. mrel requirements are gradually being met, as envisaged. progress in tackling legacy problems, such as the high levels of non - performing loans, is ongoing and should continue. on the other hand, the advocates of risk sharing rightly argue that mechanisms are needed to build confidence in the resilience of the financial sector as a whole and that such measures are also indispensable to consolidate trust in the euro area. trust that, in turn, is vital to effectively reduce risks. cases - in - point include the establishment of a credible backstop for the single resolution fund ( srf ) and of a european deposit insurance scheme ( edis ). establishing a credible backstop for the srf will instil confidence in the markets that resolution will happen in an orderly fashion, thus helping resolution authorities to perform their tasks while avoiding financial stability risks. similarly, a fully mutualised edis would contribute to making sure that bank failures do not trigger financial instability, as depositors will trust that their deposits are safe, regardless of the location of the bank in question. edis and the backstop for the srf are thus not only risk - sharing but also confidence - building mechanisms contributing to risk reduction. and to foster confidence that funds pooled in edis will not lead to systematic transfers between banking sectors, banks ’ contributions to the deposit insurance fund can be designed to reflect the relative riskiness of banks, following a polluter - pays principle. 3 there are some