the other hand, these results should not make us complacent. we need to keep up our efforts and strive for the full, timely and consistent implementation of those elements of the reforms that are still missing. for the eu, these include, in particular, the fundamental review of the trading book and the basel iii finalisation package of december 2017. the latter includes the so - called output floor, which limits the capital benefit a bank can gain from relying on internal models rather than on the standardised approach. some argue that these and other reform elements are not well - suited to the european market, and that they would have a disproportionate impact on eu banks. nevertheless, while the reforms will require adjustment by some firms, the transition period – in particular for the output floor – will help to smooth the transition and make the impact manageable for banks. 1 / 4 bis central bankers'speeches overall, i am deeply convinced that the reforms are necessary to restore confidence in the banking sector and will lead to a better prudential framework. it is thus essential that the entire basel iii package is implemented faithfully and consistently so that we can maintain a levelplaying field at global level and ensure that the g20 framework delivers on its objectives. macroprudential policy and a macroprudential dimension to stress tests of the banking sector the implementation of these reforms will mark the end of a long journey since the global financial crisis. attention will shift towards ensuring the resilience of the banking sector over the financial cycle. our macroprudential policy framework and related quantitative assessments, providing a macroprudential dimension to stress tests of the banking sector, will be cornerstones of this process. let me say a few words about our policy framework. macroprudential powers were conferred on the ecb in 2014. the ecb shares responsibility for macroprudential policy in the euro area with the national authorities who actually implement macroprudential measures. the ecb is notified of hundreds of national measures each year and the ecb ’ s governing council may then raise objections. the ecb can also tighten, or “ top up ”, should measures be deemed insufficient, provided that these refer to instruments covered in european legislation – the capital requirements directive and the capital requirements regulation. the combined macroprudential buffer requirements in the euro area currently range between 2. 5 % - to 5. 75 % depending on the country. banks directly supervised by the ecb

not only tracks the resilience of individual banking institutions but also accounts for how banks interact with each other and how their actions feed back to the economy. it internalises the fact that banks may deleverage in response to negative developments. it subsequently, takes into account the extent to which this adverse credit supply shock may aggravate the downturn leading to a further deterioration in banks ’ balance sheets. this framework complements the eu - wide stress testing exercises conducted under the aegis of the european banking authority ( eba ), which are mainly of a micro - prudential nature. a macroprudential exercise conducted in 2018 for banks directly supervised by the ecb4 using the baseline and adverse scenarios of the recent eba stress test, confirmed the general resilience of the euro area banking system. bank deleveraging and feedback to the real economy would however lead to a substantial drop in lending to the non - financial private sector. this would lead to an additional fall in gdp of 1. 6 % across the euro area, on top of the original gdp shocks in the adverse scenario over the three - year horizon. this analytical framework can also help us to calibrate macroprudential policies. the framework shows, for instance, that the timing of the activation of capital - based measures matters for their effectiveness. if a new policy tool is introduced in good times, banks are able to build up additional capital by retaining their profits, and they do not need to shrink their loan books to improve their capital ratios. a new capital policy tool that is introduced in bad times however is likely to trigger a reduction in credit and place an additional drag on the economy. bad timing increases the cost of macroprudential and regulatory interventions, potentially rendering such measures counter - productive. risks and macroprudential policy for the non - bank financial sector let me now turn to the non - bank financial sector which is becoming ever more important for our financial system. in my view, work on the regulatory and, in particular, the macroprudential framework for this sector is still in its early stages. the share of market - based financing is likely to continue growing, not least in view of the efforts made in the context of the capital markets union, which will have tangible benefits for the euro area economy as a whole. more integrated and deeper european capital markets will promote a more diversified funding base for the european corporate sector. this, in turn, will help firms weather a possible shock