this would suggest that investors expect the clarity provided by the exercise to be clearly positive for the euro area banking sector. regarding the response to the exercise, if some capital shortfalls are revealed, the private sector is today in a position to play a major part in filling them. this is more feasible than in recent years given the improvement in market conditions. indeed, since last year banks have been improving the robustness of their balance sheets by increasing capital and provisions in anticipation of our comprehensive assessment. in this sense, the exercise is already producing results – and it indicates the willingness of banks to resolve existing problems within the sector itself. in the same vein, given the number and size of european banks, there is scope for some consolidation within the banking sector without reinforcing the so - called “ too - big - to - fail ” problem. our recent “ banking structures report ” shows that this trend is already ongoing in europe. nevertheless, as a last resort, confirming the existence of public backstops is important to reassure all stakeholders of the credibility of the whole assessment exercise. conclusion let me conclude. although various explanations exist for the crisis, i am pleased that what i view as one of its important lessons is now being learned. this lesson is that a single financial market with a single currency needs a single system of supervision – and alongside this, a single european resolution mechanism ( srm ). the srm is an essential component of banking union. it helps break the bank - sovereign nexus by allowing banks to be resolved at the european level with minimum use of taxpayer funds. and it adds credibility to the european supervisor by providing reassurance that banks can be resolved in an orderly and efficient manner without creating financial instability – especially large cross - border banks. with the development of banking union, we are creating the conditions for a more stable financial sector in the future and a better functioning monetary union. but we also need a banking sector that takes responsibility. as supervisors, we expect the banks to be better capitalised and less leveraged, more stable and efficient, to perform their indispensable role in financing the economy and supporting the on - going, fragile economic recovery. because the crisis of the european economy is not over. it is true that modest growth has returned in the last six months and that countries under stress have gone through a painful but successful adjustment, reducing their deficits, correcting their initial loss of competitiveness in terms of unit labour costs and even achieving external accounts surpluses. at

- free curve – a key benchmark for the pricing of bank loans. asset purchases in tandem compressed yields at the longer end of the curve, pushing down mortgage rates and, 4 / 8 bis central bankers'speeches at the same time, making bank lending to firms more attractive in risk - adjusted terms. and bankbased transmission was amplified by the tltros, which lowered funding costs and increased competition among banks. over time, we also enhanced this framework with state - and date - based forward guidance14, allowing us to rotate the marginal tool for determining the policy stance from asset purchases to forward guidance as the economic outlook improved. today, this forward guidance links our expectations on the path of future rates to the path of inflation towards our aim, leading to automatic easing if the convergence path towards 2 % is delayed. there is mounting evidence that these instruments have been effective. 15 negative rates have proven to be a very important tool in the euro area – and more so than they would have been in an economy like the united states. indeed, the federal reserve eschewed negative rates in part due to concerns about their effects on the money market industry, which are key intermediaries in the us financial system. but this factor is less relevant in the euro area, since many money market funds have been operating as variable net asset value funds, and therefore are more flexible to extend duration to seek additional returns. furthermore, the euro area is a relatively open economy for its size, with total trade making up 51 % of gdp, 16 compared with 27 % in the united states. this means that the impact of negative rates on inflation and financing conditions via the exchange rate is more powerful. in short, faced with a new environment of downside risks and limited conventional policy space, the ecb showed that it had no shortage of tools available to respond. unconventional measures proved suitable substitutes for conventional ones : using market prices to construct a so - called “ shadow short rate ”, 17 the stimulus provided appears broadly in line with the recommendation of monetary policy rules as suggested by recent academic research. 18 our capacity to react in this way was made possible by the flexibility embedded in our mandate – a flexibility that was confirmed by the recent ruling of the european court of justice. this not only affirmed that asset purchases are a legal instrument of monetary policy in the euro area, but emphasised the broad discretion of the ecb in using all our tools in a necessary and proportionate way to achieve our objective. however, although