##cive to creating an environment of stable prices in which economic activity can flourish. third, the treaty clearly recognises that assigning an important public policy to an independent institution has to be accompanied by transparent and accountable policy design and implementation. transparency and the accountability of the central bank serve the interests of democracy, help to bolster the legitimacy of the central bank and, by imposing discipline on policymakers, add to its credibility. i shall return to these issues in the course of my presentation. for the time being, let me just say that we attach crucial importance to both accountability and transparency in the pursuit of our mandate and that the ecb follows best practice in both regards, in many respects going well beyond the literal requirements of the treaty. finally, let me mention the relevant issue of fiscal policy. in stage three of economic and monetary union, budgetary policy ultimately remains the competence of the individual member states. this unprecedented combination of a single monetary policy coexisting with many, distinct fiscal policies has led some critics to even question the possibility of success of monetary union. this is, in my view, a wrong perception. what is crucial in the context of the single currency area is that participant countries come to a common view on basic principles. the treaty, supplemented by the stability and growth pact, reflects a broad agreement and provides for such basic principles in the field of fiscal policy. in particular, it requires that countries in the eu, and especially those that have adopted the euro, respect a common code of fiscal conduct that is expected to uphold discipline in the management of government finances. by promoting sound government finances and thereby imposing limits on the expansion of public debt, the treaty fortifies the conditions for price stability and for strong, sustainable economic growth in the euro area. this also adds to the credibility of monetary union and of monetary policy within it. the ecb ’ s monetary policy strategy the institutional setup provided by the treaty, therefore, ensures a very solid foundation for building and maintaining a high level of credibility for the ecb and for the successful conduct of monetary policy in the euro area. in the end, however, it will be the central bank ’ s own performance that will determine its credibility. this naturally leads to the following question : how should price stability be maintained? this question is addressed by the ecb ’ s monetary policy strategy, which was adopted by the governing council of the ecb and announced in october 1998. the strategy provides the framework for conducting monetary policy in the euro

left a harmful heritage in transmission, which heralded a third phase of crisis : banks in a vast portion of the euro area had lost their willingness and capacity to keep credit flowing to the real economy. borrowing conditions were being tightened precisely at the time when the economy was entering a new slump. this required further flexibility in our policy framework, articulated in three main instruments : a series of targeted longterm refinancing operations ( tltros ), a negative interest rate policy, and an asset purchase programme including private and public securities. the tltros offer banks long - term refinancing conditional on their using the funds to expand lending. the asset purchase program, together with a negative rate applied on excess reserves, quickens the pace at which banks and other lenders are returning to economic risk - taking. lower term spreads on public securities encourage a shift in the composition of banks ’ portfolios toward other types of exposures with a higher risk - adjusted return. finally, the tax on electronic reserves discourages liquidity hoarding and speeds up the process of asset reallocation. as a result of this series of measures, we are now seeing the bank - based transmission process 3 / 8 bis central bankers'speeches working more smoothly. banks have responded to the combination of measures by slashing their lending rates and shifting out their loan supply schedule. lending volumes are picking up gradually. and lending rates are easing considerably : between june 2014 and july 2016, the composite cost - of - borrowing indicator for new corporate loans fell by 95 basis points in the euro area and up to 150 basis points in stressed countries. the role played by monetary policy in supporting bank - based transmission has been confirmed by recent academic research. 2 in particular, studies suggest that the elastic provision of liquidity by the ecb earlier in the crisis – e. g. via the longer - term refinancing operations that started in december 2011 – was instrumental in counteracting the freezing of bank funding markets and in curtailing the risk of a credit crunch. the evidence also suggests that the shift in our policy strategy towards a more active support of bank lending has been successful. the combination of targeted longer - term refinancing operations and large - scale asset purchases has been found to have induced an increase in bank lending throughout the euro area, as well as a simultaneous reduction in the exposure of banks in stressed countries to their domestic sovereigns. this latter effect was not observable for the earlier, non