channel. conversely, forward guidance may affect the term premium component of longer - term yields by reducing the uncertainty about the future path of short - term interest rates and thereby reducing duration risk in the market. accordingly, the net stimulus provided by asset purchases depends in part on expectations of how policymakers will adjust short - term interest rates in the future. but these additional complexities do not alter, and in fact reinforce, the key insight – namely that the different policy tools must be seen as mutually complementary elements of a package. the sequencing between policy tools, as we have described it in our forward guidance since march 2016, with rates expected “ to remain at their present levels for an extended period of time, and well past the horizon of our net asset purchases ”, is motivated by this insight. for example : letting the expectations component of longer - term yields float upwards while, at the same time, engaging in asset purchases would be an inefficient conduct of policy. the compression of yields through the asset purchases would be directly countered by an upward drift in the expectations component. by contrast, the established sequencing helps anchor the expectations component and thereby allows the app to exert its full effect. 8 / 10 bis central bankers'speeches calibrating app while fostering the appropriate interest rate environment is a critical intermediate condition enabling the transmission of our policies, in the end we do not directly control the yield curve. we can influence the yield curve only indirectly, through forward guidance and, notably, via modulating the size and intensity of our asset purchases. this process is mediated and to some extent difficult to forecast : we change our instruments and let markets determine the asset price implications of our actions. but, importantly, this process preserves the ability of markets to express views about the creditworthiness of the financial assets that are to be priced. indeed the last year has demonstrated that, despite the ecb ’ s forward guidance on short - term interest rates and its continuing presence in the market as a large investor, market prices have tended to reflect investors ’ evolving views about the prospective standing of sovereign issuers ’ credit. with this in mind, let me turn now to the challenge of calibrating the size and duration of purchases that can deliver that yield constellation and, indirectly, the set of financing conditions consistent with our objective. for this, we rely on the current theory and empirics of quantitative interventions by central banks. the theory available today stipulates that it is primarily by announcing that

real interest rates and crowding out effects, and to insure sustainability of public finances. if this challenge is not met, the current crisis is bound to be exacerbated by a sovereign debt crisis. • in the area of regulation a broad set of measures is under way and considerable progress has been made. but as signs of stabilisation in the financial system and the economy are emerging, reform appetite is waning and there is a risk of missing the opportunity of a paradigm shift in the financial system. • especially as the crisis intensified, central banks took immediate and unprecedented action by lowering rates to historically low levels and providing ample liquidity. • keeping interest rates too low for too long may well lay the basis for new imbalances and instability. central banks need to prepare for credible strategies to phase out their support and stand ready to prepare financial markets when they come to unwind their credit support measures. • in academic circles the financial crisis has revived the debate whether central banks, in the conduct of monetary policy, should pay more attention to financial variables, and specifically, whether inflation targeting strategies do not focus too narrowly on economic developments alone. relative to this the ecb ’ s monetary policy strategy has proved to be robust. the monetary pillar provides for discipline not to ignore risks to price stability stemming from imbalances in money and credit developments. • initiatives are now being taken to close the gap in the area of cross - border supervision and between micro - and macro prudential supervision. the envisaged establishment of the european systemic risk board ( esrb ) which the ecb will support analytically and logistically marks an important step in this direction. the esrb will monitor systemic risk and provide risk warnings and recommendations. effective cooperation and leadership at the european level will be crucial to make the esrb successful in the pursuit of its mandate. • is the current improvement in some financial market segments genuine or driven by governments and central banks? when the crisis took hold and risk aversion spread, leading to de - leveraging and a sharp decline in securitisation public attention focused on executive pay as an area for regulation. in fact improving corporate governance remains a key area for regulation. bonus systems need to be changed so as to make managers liable for their decisions and provide them with the right incentives to focus on longer - term sustainability of their business models rather than short - term profit. • but corporate governance is just one area where regulation needs to be improved. as just discussed