authority at its centre, is essential to enable timely and impartial resolution decisions focused on the european dimension and to minimise resolution costs. it will contribute to breaking the vicious bank - sovereign nexus and minimize the risk of supervisory forbearance in the absence of workable resolution options. the european commission will present a proposal in the course of the year. as you can see europe has responded decisively to the challenges. member states have progressed individually in rebalancing their economies and in common in strengthening the union ’ s institutions. notwithstanding the achievements made, no time should be wasted in complacency. continued policy actions are necessary to sustain confidence and revive the growth potential of euro area countries. the imperative is to further reduce fiscal and structural imbalances as well as to advance with financial sector restructuring and with european institution building. additional progress on those reform fronts will send a strong signal to markets. d. the monetary policy response let me also briefly touch upon the response of monetary policy. as you know, our primary objective is to maintain price stability in the euro area. neither our mandate nor our resolve to deliver on it has changed in the face of the crisis. however, the range of instruments we use to achieve price stability had to be widened. the crisis severely damaged the transmission mechanism of monetary policy and thus changes in the ecb ’ s key interest rates could not be transmitted uniformly across the euro area. moreover, the sources of disruption in the transmission varied over time. hence, we used different types of non - standard measures as the crisis evolved : we provided liquidity in fixedrate, full allotment mode, considerably extended the maturity of central bank credit, widened the eligible collateral set, bought government and covered bonds outright and reduced reserve requirements. bis central bankers ’ speeches this is also the case for the last measure we announced : the outright monetary transactions – omts. the omts are designed to tackle unfounded fears of the reversibility of the euro that distorted the sovereign bond markets in the euro area. the perceived redenomination risk had led to a fragmentation of financial markets along national borders and jeopardised the singleness of our monetary policy. thus, the omts were designed as a credible backstop to self - reinforcing negative market expectations and has been successful in alleviating some of the acute crisis challenges i have alluded to before. yet, they were also designed to preserve incentives for prudent economic policies. the ec

on average higher than in previous periods. the improvement in investment income has, however, not been enough to avoid a broad - based decline in profitability. large euro area insurers have continued to increase their investment exposure to government and corporate bonds during the first half of 2009, as they have continued to shift their investment strategies away from equities in an attempt to de - risk their investment exposures at the end of the first half of 2009, a sample of large euro area insurers had about 70 % of their investments in bonds, up from about 50 % at the end of 2007 ( see chart 13 ). overall, looking forward, euro area insurers continue to face challenges mainly due to the subdued economic activity, which is reflected in the uncertainty of their earnings prospects ( see chart 14 ). at the same time, the disclosed solvency positions of euro area insurers indicate a reasonable amount of remaining shock - absorption capacity to weather the materialisation of the risks they currently face. v. overall assessment let me now conclude by providing an overall assessment of the identified risks to euro area financial system stability. as mentioned at the beginning of my presentation, the extraordinary policy measures taken by central banks and governments since late last year have been successful in restoring confidence in, and improving the resilience of, financial systems around the world. a recovery of risk appetite, underpinned by lowered systemic risk, has contributed to the turnaround in financial markets since march 2009 and supported the trading income of large and complex banking groups. many of these institutions also benefited from a considerable boost to net interest income on account of very steep yield curves. the significant strengthening of the profitability of many lcbgs enabled them to absorb considerable writedowns on securities and loans while still, on average, reporting profits. some were even able to return the capital they had received from governments, thus exiting from financial support. despite the recovery in financial markets and improved financial performance of euro area lcbgs, there are several grounds for caution in assessing the outlook for financial stability in the euro area. let me be elaborate on these key risks and vulnerabilities : the main risks identified outside the euro area financial system include the possibility of : • vulnerabilities being revealed in non - financial corporations ’ balance sheets, because of high leverage, low profitability and tight financing conditions ; • greater - than - expected household sector credit losses if unemployment rises by more than expected ; • the surge of government