oriented policies are no substitutes for fiscal and external adjustment : they are mutually reinforcing. if designed in a way that reduces rents and fights vested interests, they will not only improve the efficiency of the adjustment process but also its equity, to the benefit of the poorest, the youngest, and of future generations. they will support medium to long - term growth and therefore employment and fiscal sustainability. they will help economies to reap the full benefits of belonging to the single market and to the economic and monetary union. they will help societies to sustain social models which would otherwise be debased by the permanent output loss caused by the crisis, and the related loss of tax revenues. 16 i should add that there is a need for reforms in all euro area countries, including the larger ones, albeit to varying degrees and in different areas. even if a euro area country doesn ’ t feel the pressure of financial markets and programme conditionality, its government should take seriously the responsibility to carry out necessary reforms that will ultimately support growth elsewhere in the region. and it is the responsibility of all euro area governments, jointly, to advance the reforms outlined last december by the president of the european council that will give stable foundations to the single currency. the single supervisory mechanism is an important first step, to be complemented as soon as possible by a single resolution authority and fund ; further steps towards an economic, fiscal and political union should follow, completing our economic and monetary union. if there is a lesson to be learnt for all euro area countries, it will be to make sure that in the future they make the necessary changes pro - actively and not in response to a crisis. thank you for your attention. a coordinated reduction of mark - ups would lead to a similar impact on gdp growth in the adjusting countries. international spillovers of reforms are generally found to be limited. for a review, see dieppe a. et al. ( 2012 ), competitiveness and external imbalances within the euro area, ecb occasional paper no 139. see coeure b. ( 2013 ), the three dimensions of the euro area crisis, speech at the asia - europe economic forum conference on “ european troubles, asian worries ”, brussels, 21 january. bis central bankers ’ speeches slide 1 bis central bankers ’ speeches slide 2 bis central bankers ’ speeches slide 3 slide 4 bis central bankers ’ speeches slide 5 slide 6 bis central bankers ’ speeches slide 7 slide 8 bis central bankers ’ speeches slide 9 bis central bankers ’ speeches

##ency of the financial system. the fed expects the banks it oversees, including the largest banks, to be financially sound. two core elements of soundness are capital and liquidity. capital is the funds provided by a bank ’ s shareholders that serve as a buffer to enable the firm to absorb unexpected losses, including during times of economic downturn or financial stress. a bank ’ s liquidity is its ability to meet current and future obligations to customers and others with whom it enters into financial transactions. liquidity is the lifeblood of a financial firm, because once liquidity dries up, the firm is no longer able to operate. beyond focusing on capital and liquidity, the fed also promotes safety and soundness by seeking to ensure that banks are well managed and subject to strong governance by a board of directors responsible to shareholders. it is unfortunate that i need to underscore this, but we expect the firms we oversee to follow the law and to operate in an ethical manner. too often in recent years, bankers at large institutions have not done so, sometimes brazenly. these incidents, both individually and in their totality, raise legitimate questions of whether there may be pervasive shortcomings in the values of large financial firms that might undermine their safety and soundness. 4 while the federal reserve looks closely at the individual safety and soundness of large financial firms, as i noted earlier, it is not sufficient to view each of these firms in isolation. the safety and soundness of large firms affects, and is affected by, the stability of the broader financial system. in the decades of relative financial stability leading up to the crisis, it is fair to say that the fed focused too much on individual firms and not enough on their role in the financial system and the implications of those firms ’ operations for financial stability. to a current list of these firms is available on the federal reserve board ’ s webpage “ large institution supervision coordinating committee “. this list may evolve based on changes in firms ’ relative systemic importance. financial stability oversight council determinations of nonbank financial institutions subject to federal reserve oversight are available on the u. s. department of treasury ’ s website. information is based on data from the most recent fr y - 9c report, which is filed quarterly by bank holding companies and savings and loan holding companies. to access the report, see the board ’ s webpage “ reporting forms “. for more information, see daniel k. tarullo ( 2014 )