tend to postpone decisions to invest in such a risky economic environment. this could stifle innovation, job creation and economic growth. for the average citizen also, long - term planning becomes a challenge. how does one save for a child's education or one's retirement when the future value of money could be so uncertain? 1 / 3 bis - central bankers'speeches furthermore, without tightening monetary policies, disparities between the wealthier and the more vulnerable segments of society are likely to widen in an inflationary environment. those with assets, like property or stocks, might see the value of such assets rise with inflation. in contrast, those relying solely on fixed incomes or wages, could find themselves struggling to keep up with rising costs. history has shown that periods of high inflation, for the reasons just explained, tend to create social unrest. in contrast, price stability maintains social cohesion and stability. so, the societal wellbeing is a crucial outcome of price stability. under the treaty on the functioning of the european union ( tfeu ) and the statute of the european system of central banks and the european central bank ( " statute of the escb " ), price stability is the primary objective of the ecb. price stability ensures that individuals and businesses can maintain the value of their income and wealth, and plan for the future with confidence. this not only helps the economy to grow, but also pave the way for job creation and prosperity. this brings me to another pivotal point : the symbiotic relationship between price stability and financial stability. the pursuit of price stability through monetary policy, and of financial stability through macroprudential policy, are to a large extend complementary. the primary objective of the ecb is price stability, namely a two per cent inflation rate over the medium term. however, monetary policy needs to take financial stability and the stance of macroprudential policy into account. monetary policy and macroprudential policy operate through common transmission channels, meaning that the scope for interaction between the two policy spheres is wide. for example, the central bank of cyprus, acting proactively, has recently increased the countercyclical buffer to 1 % of risk weighted assets for all licensed banks incorporated in cyprus. the countercyclical buffer can work concurrently with monetary policy as it increases the resilience of the banking sector. during periods of stress, when losses materialise, the central bank can release this buffer so that the banking sector can

panicos demetriades : the pros and cons of having a separate and independently managed asset management and development bank welcome remarks by mr panicos demetriades, governor of the central bank of cyprus, at the institute of directors ( iod ) open panel discussion, nicosia, 27 august 2013. * * * good evening ladies and gentlemen. i think tonight ’ s panel discussion is very important. the bank of cyprus is our largest bank and it will shortly hold its annual general meeting. at the agm shareholders will choose the board that will run the bank. the strategy that the new board approves will need to be aggressively pursued. the bank of cyprus in the future will have a greater focus on its core cypriot business, serving personal, sme and corporate customers. it will also have to deal with the legacy of historic expansion and growth in non - performing loans. the central bank of cyprus does not have a fixed view as to whether the bank of cyprus should be split into two or not. this is a decision for shareholders and the board. the question is whether separating certain assets is the right answer today. opinion is divided – some say that this would be damaging to borrowers, others that it is the only way to manage the assets and restore the bank to health. i believe that we need to confront this issue and the bank should investigate all options. any decision should be based on the facts and merits. in all options, the bank of cyprus will need to create an organisation to manage nonperforming loans. the bank is already moving in this direction, and should it remain as a single entity it is likely that there will still be a dedicated focus on managing the workout of troubled loans. splitting the bank of cyprus into a commercial bank and an asset management / development bank would create a legal and management separation. this – as any other option – has a number of merits and challenges. two institutions would provide specialisation. the asset management / development bank could focus on maximising value through the restructuring of the loan book with no immediate time pressures. it could also act as a specialist bank focussed on real estate and development related activities. the remaining commercial bank could focus on serving the domestic economy. however, a split could be operationally disruptive in the immediate term, even if it was beneficial over time. substantial progress in the restructuring of the banking system has been made. this has not been easy, and market conditions remain fragile. in determining the way