depend on developments in financial markets and the economy. the current situation of ample liquidity in euro area money markets guarantees a continued positive impact on financing conditions. as regards the monetary policy stance itself, it will be designed as always to deliver price stability, in the medium and long term, in line with our definition. crisis prevention governments and central banks have been focused on financial reform since october 2008. the new financial architecture will build on the assumption that a re - pricing of risk around its fundamental value is needed. price discovery within the market in pursuit of a fundamental equilibrium in risk pricing – one that can be sustained by long - term trends – is likely to take time and experience some further oscillations. a question that remains is : where will this process end? as aggregate – undiversifiable – risk diminishes, this will be reflected in lower premia that financial markets pay for risk - taking. we know that the commitment by central banks to keep inflation low and stable, communicate clearly about their price stability objectives, and then act on those objectives, has all contributed to a long - term reduction in macroeconomic risk. the fraction of the reduction in risk compensation related to having a stable macroeconomic framework is a steady acquisition of modern societies. instead, the complement to that fraction – that which is due to excessive financial sophistication, abnormal risk tolerance and shortcomings in risk management – should be gone for ever. that is why my conjecture is that risk premia in a number of markets will continue to be reduced – but they are unlikely to reach the compressed levels that we saw prior to the crisis. normalcy will probably be reached at a permanently higher level of risk compensation in a number of markets. in order to build an effective system of crisis prevention, we will all need to take on board this simple fact : compensation for risk will need to be appropriate. we shall prevent “ pure ” speculative activities from becoming the dominant force on the markets. and we shall build financial infrastructures with sufficient buffers to make them bulwarks against instability and resist shocks. let me mention some striking facts about the power of such buffers. there is a widespread perception that banking crises in times when money was convertible into gold had apocalyptic consequences for bank depositors. this is not true. the estimated average loss on assets born by depositors in banks that were closed down as a consequence of financial crises was minuscule. taking a yearly average between 1865 and 1920,

price stability, and so our strategy required us to respond – even though our central forecast at that time was for a low but positive rate of inflation in the years ahead. we responded in two main ways. first, we clarified our reaction function to the main risks we saw and the instruments we would use if each of those risks materialised. 5 this sent a clear signal to observers that we were ready to respond in the case of adverse contingencies. then, when those contingencies arose, we followed through with our forward guidance and introduced a set of policy measures that was designed to cover the full downside distribution of risks – that is, a very accommodative policy stance to combat disinflationary forces, and an option to be even more accommodative if the situation deteriorated into outright deflation. thanks to these policy interventions, the distribution of risks has narrowed considerably over time – as you can see from the yellow line – and we no longer see a meaningful probability of deflation. the balance of risks has also shifted upwards as the economic recovery has gathered steam. the current economic expansion in the euro area is stronger than it has been for a decade and broader than for two decades. this improving picture is the main reason for our recent decision to recalibrate our policy by reducing the pace of our monthly asset purchases from €60 billion to €30 billion, starting in january. of course, risks emanate not only from our own jurisdiction, the euro area, where we can respond with our monetary policy, but also from the rest of the world. indeed, while the ecb ’ s governing council currently sees the risks surrounding the euro area ’ s growth outlook as broadly balanced, it sees downside risks relating primarily to global factors. but here too we can manage risks effectively by cooperating closely with other central banks. 6 this does not mean that we decide jointly on policy actions. it rather means that through our regular bilateral contacts, and dialogues in multilateral fora such as the imf, the bis and the 2 / 7 bis central bankers'speeches g20, we can achieve a better understanding of global risks and their channels of propagation. and when risks do turn into shocks, this cooperation allows us to build up readiness and have the tools in place to react. perhaps most importantly, since 2011, the ecb has operated a permanent network of swap lines with the bank of england, the bank of japan, the federal reserve and others