and it has been affected by a number of factors. first, the flattening of the euro area yield curve in recent months has encouraged substitution into shorter - term monetary assets from longer - term instruments outside m3. second, the growth of the “ other financial intermediaries ” ( ofi ) sector may accentuate this development, since institutional investors such as ofis, which have become increasingly important over recent years, may be more sensitive to such yield differentials than households. third, the shift in international investor sentiment in favour of the euro area economy has led to capital inflows, which – as foreigners purchase euro - denominated securities from domestic residents – have also contributed to the acceleration of m3 growth. such phenomena suggest some caution in interpreting the latest annual growth rates. nevertheless, they should not lead to the conclusion that the strong recent dynamism of m3 can be discounted. the fact remains that the underlying rate of monetary expansion continues to be strong. higher policy rates and short - term interest rates are starting to influence monetary and credit dynamics, although, as yet, they have not significantly dampened their overall strength. the growth of credit to the private sector has moderated somewhat, though it seems to have stabilised at double - digit rates. borrowing for financial transactions – notably in the context of securitisation activities, private equity transactions and leveraged buyouts ( lbos ) – has supported strong rates of credit expansion. credit extended for such purposes may not have the same immediate implications for aggregate demand as lending to finance investment or consumption spending. nonetheless, such borrowing contributes to the accumulation of monetary liquidity in the euro area, as bank balance sheets expand. given the vigorous monetary and credit growth in an environment of already ample liquidity, a crosscheck of the outcome of the economic analysis with that of the monetary analysis supports the assessment that upside risks to price stability prevail over the medium to longer term. accordingly, as stressed by the governing council already last month, strong vigilance is of the essence in order to ensure that risks to price stability over the medium term do not materialise. this will support the solid anchoring of medium to longer - term inflation expectations in the euro area at levels consistent with price stability. iii. the euro area financial system let me now conclude with a brief assessment of the prospects for financial stability in the euro area. as i mentioned at the beginning of my presentation, the external macro - financial environment of the euro area

capital neutral at inception, but it would plausibly entail lower capital through the cycle. this debate has given rise to the concept of a positive neutral ccyb in normal times, first introduced by the bank of england in 2016. 12 this term refers to the introduction of a positive ccyb requirement level even in the absence of financial imbalances. since the outbreak of the pandemic, the debate has naturally gained ground in many institutions. indeed, the basel committee published last year a newsletter clarifying that the basel framework leaves open the possibility of introducing a positive neutral ccyb. 13 the ecb and the esrb have also reiterated their support for this approach. 14 indeed, many european countries have gradually adopted this new ccyb calibration approach in recent years, including croatia, cyprus, estonia, ireland, lithuania, the netherlands, norway and sweden. let me illustrate how a positive neutral ccyb can be set throughout the financial cycle. to this end, i will take as a reference the analytical framework described by de nederlandsche bank, 15 where four different phases associated with the degree of systemic risk are distinguished. first, the recovery phase, which is the one that follows a crisis, is a period of recovery of deteriorated balance sheets, both in the financial system and among households and businesses. in this phase, the ccyb is maintained at zero. second, in the normality phase, the balance sheet recovery is well under way and the ccyb is built up to reach the neutral level. third, in the phase of increased risk, when excessive developments in lending or asset prices lead to higher systemic risk, the ccyb should be raised above the neutral level. finally, in the materialisation phase, risk materialises and the ccyb is fully or partly released. obviously, not all these phases need to happen in the aforementioned stylised order. for example, the phase of increased risk could be curbed as a consequence of the increase in the ccyb above neutral levels or the use of other macroprudential tools. if that is the case, the ccyb could be progressively released to the neutral level. or, after reaching the neutral level, the economy could enter a recession abruptly, before vulnerability signals accumulate, thus entailing losses for the banking system. depending on the circumstances, a total or bank o f england. ( 2016 ). “ the financial po licy co mmittee ’