. a genuine understanding of monetary policy and its goal – price stability, and therefore the preservation of the purchasing power of the euro – also creates the best conditions for correct price and wage formation in markets, whereby all parties concerned meet their obligations and second - round effects on wage and price setting stemming from transitory price increases ( e. g. oil, commodities, food ) are thus avoided. second, effective communication also enhances short - term predictability. 3 through their actions, central banks can directly control very short - term interest rates. however, given that for consumption and investment decisions the longer - term interest rates are more relevant, the whole yield curve is relevant for the effectiveness of monetary policy. medium - and longterm interest rates largely depend on private expectations regarding future central bank decisions. lack of effective central bank communication would eventually lead to higher, more volatile, levels of long - term interest rates, which could be detrimental to economic activity. by contrast, an environment in which the predictability of interest rate movements and their relation to key macroeconomic developments is well understood supports correct price formation in financial markets, contributes to the efficient allocation of funds, and reduces uncertainty concerning future interest rates. in such an environment, firms can improve their risk management and achieve better incentives to invest. how the ecb addresses its audience let me turn to how the governing council of the ecb explains its monetary policy decisions to the public. our communications aim to enhance the effectiveness of monetary policy. in this respect, the governing council fully subscribes to the basic principles of modern central bank communication described earlier. a high degree of transparency vis - a - vis our monetary policy has helped the public to hold the governing council accountable for its policy see kahnemann, d. ( 2003 ), “ maps of bounded rationality : psychology for behavioural economics ”, american economic review, vol. 93 ( 5 ), pp. 1449 - 1475, and lohmann, s. ( 2003 ), “ why do institutions matter? an audience - cost theory of institutional commitment ”, governance, vol. 16 ( 1 ), pp. 95 - 110. see ehrmann, m. and m. fratzscher ( 2007 ), ” social value of public information : testing the limits to transparency ”, ecb working paper no. 821, and the literature quoted therein. decisions. communication on monetary policy with a single voice is desirable and has been efficiently applied from the start of monetary

, insurance corporations, pension funds and financial vehicle corporations have doubled since the global financial crisis from €15 trillion to €31 trillion. the sector has become increasingly important in financing the euro area real economy in recent years. as a share of credit granted by all financial institutions [ 3 ], credit granted by non - banks to euro area nonfinancial corporates has almost doubled since 2008, from 15 % to 26 % at the end of last year. the growing role of non - banks offers the benefit of diversifying sources of finance and can thereby help to ensure a smooth provision of funding to the real economy. [ 5 ] evidence also suggests that a higher share of non - bank finance can help economies to recover faster from recessions, [ 6 ] when banks ’ ability to lend may be impaired. crucially, however, the benefits of this diversification rely on making sure that the non - bank financial sector provides a stable source of funding, ensuring robust financing for companies in both normal and stressed market conditions. liquidity and leverage – lessons from recent market events as the market footprint of non - bank financial institutions increases, new risks and vulnerabilities can arise. let me discuss three in particular. first, the strong growth of the non - bank financial sector – especially the asset management industry – over the past 15 years has been accompanied by an increase in liquidity mismatches. a key contributing factor is that investors in open - ended funds – which account for the largest part of the investment fund sector – can typically redeem their shares on a daily basis without prior notice. this creates a liquidity mismatch especially in funds that invest in relatively illiquid assets, such as high - yield corporate bonds. liquidity demand has become more procyclical as a result, especially during periods of financial market stress. during the pandemic, we saw how liquidity mismatches in open - ended funds increased demand for market liquidity, which amplified stress in financial markets. the second vulnerability in the non - bank financial system relates to financial and synthetic leverage, which can amplify shocks and create spillover risks for banks. we saw an example of this with archegos capital management, which defaulted on its losses from leveraged equity trades in march 2021. the fact that archegos used total return swaps to generate synthetic exposures highlights another challenge in identifying leverage, as leverage can be embedded in derivative exposures. [ 9 ] while the archegos