s balance sheet over the years to come. 5 conclusion the normalisation of monetary policy provides us with an opportunity to review the operational framework. that framework should be simple, efficient and as marketneutral as possible, whilst at the same time allowing a good handle on interest rates. the operational framework is the vehicle through which monetary policy signals are transmitted. at present, the monetary policy signals are clearly pointing toward further tightening. inflation in the euro area may be receding but it is still too high. and the latest forecasts suggest that we cannot expect price stability to be restored in a timely manner. inflation is proving to be more persistent than many thought. in response, monetary policy must now show itself to be more persistent and more resolute than many would have expected. 1 lagarde, c. ( 2023 ), the fight against inflation, speech at " deutscher sparkassentag 2023 ", hanover, 1 june. 2 schnabel, i. ( 2023 ), back to normal? balance sheet size and interest rate control, speech in new york, 27 march. 3 borio, c. ( 2023 ), getting up from the floor, bis working paper, no 1100. 7 / 7 bis - central bankers'speeches

add at this juncture that, one year ago, no one knew how strong and persistent inflation would turn out to be, either. some who didn't think the ecb governing council had it in them to turn the interest rates screw so robustly may well have had the financial system in mind. perhaps they reckoned that even if the governing council wanted to move, it would not be able to. german comedian karl valentin might have said : they would have been willing to want to, but didn't dare to be allowed. and indeed, such a rapid and significant interest rate reversal does present a challenge. especially as banks had built up vulnerabilities during the protracted low interest rate period. all the more encouraging, then, that euro area banks have coped well with the interest rate reversal so far. that's thanks not least to the supervisory and regulatory reforms in the wake of the financial crisis of 2008 - 09. today, our banks hold higher levels of capital and liquidity than they did back then. this is paying off now. and it is indeed the case that the banking turmoil that hit the united states and switzerland has not spilled over into the euro area. of course, that's not to say that regulation is perfect. it always makes sense to check whether and where regulatory adjustments need to be made. and that is what is happening. the tightening of monetary policy did not begin with the first interest rate hike – it started earlier, when asset purchases were scaled back. in march 2022, net purchases under the pandemic emergency purchase programme ( pepp ) were discontinued. it is current policy to reinvest maturing bonds until the end of 2024. one year ago, net asset purchases under the long - running asset purchase programme ( app ) came to an end. reinvestments were reduced from march of this year, and as of july, maturing securities are now not being replaced at all by new ones. the reduction of the balance sheet is gaining additional traction as a result. on average, app assets worth around €25 billion are maturing each month. however, measured against asset holdings totalling just under €5 trillion, the pace of decline remains modest. mind you, the phasing - out of the targeted longer - term refinancing operations ( tltro iii ) is also helping to shrink the balance sheet. just under €477 billion matured last week. in addition, lively use is