energy - related support measures, hindered the resolution of the so - called'zombie'companies. 5. the size and importance of the non - bank financial sector increased materially. similarly, ample liquidity and the search for yield of investors contributed to the ascendance of the non - bank financial sector and the increase in its leverage. as a result, contagion risk has increased. needless to say that the non - bank financial sector is not so tightly regulated as the banking sector allowing for pockets of vulnerability to build - up. 6. real and financial assets overvaluation morphs into a systemic risk, which, however, might be mitigated by appropriate supervisory and macroprudential measures. firstly, the likelihood and intensity of abrupt and widespread asset price corrections increases. secondly, contagion and concentration risk could amplify the transmission of shocks, in particular for residential and commercial real estate exposures. having said that, it is important to highlight that a number of monetary policy measures implemented by monetary authorities also contributed to alleviating the impact of the low - interest rate environment for the banking sector. examples are the two - tier system introduced on the remuneration of credit institutions'excess reserves, the negative interest rate on tltros linked to the achievement of lending targets, and the significant expansion of the accepted collateral. moreover, banks'profitability was underpinned by increased asset values and stronger economic outcomes. without the accommodative monetary policy measures, the counterfactual outcome would have been very different than what occurred. had economic activity stalled, bank lending and loan servicing would have been significantly affected, with adverse implications on banks'revenues and cost of credit risk. this also holds for the non - bank financial sector. the authorities also took several measures to strengthen the supervision of the euro area financial sector, notably with the creation of the ( still incomplete ) banking union, with the single supervisory mechanism and the single resolution mechanism at its core. as a result, the resilience of the euro area financial sector has improved markedly and provides a cushion to future crisis episodes. d. implications for central bank profitability during the last two years, central bank profitability took a hit, raising some concerns that the ability of central banks to deliver on their mandate might be compromised. the question is whether central bank loss - making, even if temporary, poses a threat to central bank independence and limits its ability to conduct policy going forward. importantly

is in a position to correct disequilibria quickly and efficiently by virtue of its own adjustment measures. these two requirements which exchange rates are expected to meet appear at first glance to pose a dilemma for monetary policy. on the one hand, the exchange rate should be stable ; on the other, it should react as quickly as possible to fundamental imbalances. but, given appropriate policies, this is a pseudo - problem. it is largely solved for a monetary policy which is guided by the internal objective of stability ; a steady policy geared to monetary stability helps in both respects. it reduces volatility because it introduces calm into the markets. at the same time, it is the best contribution that monetary policy can make to keeping fundamentally forced exchange rate changes at a low level and to strengthening flexibility and market mechanisms domestically. this pseudo - dilemma is then essentially solved for exchange - rate policy, too. that is because a country cannot in any case freely decide between exchange - rate systems - - say, more fixed or more flexible rates - - in line with its preferences like a visitor to a restaurant between different dishes on the menu. fixed exchange rates presuppose the ability to cope with that arrangement. it is therefore not a matter of whether one finds less flexible exchange rates, or even their final elimination in a monetary union, “ appealing ” or “ attractive ”. the crucial point is : fixed exchange rates must be feasible and, above all, sustainable under prevailing political and economic conditions. iii. post - war global and european monetary history was inseparably linked for a quarter of a century with the bretton woods system. in origin, it was a gold exchange standard with fixed but adjustable exchange rates against the us dollar, for which there was an obligation to exchange currency for gold. at its inception there was, above all, the desire to overcome the monetary conditions of the 1930s. competitive devaluations, far - reaching import restrictions and exchange controls seriously hindered world trade and economic cooperation between countries at that time. against that historical backdrop, many economists rightly celebrated the bretton woods system as a great success. without doubt, it put in place important groundwork for today ’ s high degree of openness in the goods and financial markets. admittedly, a comprehensive assessment must not overlook at least three problem areas. firstly, even the bretton woods system displayed the “ vulnerability ” of almost all systems of fixed exchange rates. current account imbalances were combated too hesitantly