( srep ) [ 4 ] and provide valuable insights for broader financial stability analyses based on granular information. over the last five years, cooperation between micro - and macroprudential authorities has increased in all phases of the stress - testing process. today, micro - and macroprudential supervision complement each other by building on their respective knowledge of the banking system to provide a sound and credible assessment of banks ’ resilience to stress. for instance, during the preparatory phase, supervisors and regulators discuss in detail the stress test methodology and the calibration of the adverse scenario. in the execution phase, supervisors conduct thorough quality assurance of banks ’ bottom - up stress tests by challenging banks ’ own figures, also using results from macroprudential top - down models. the top - down models are not only employed by supervisors to gain a macroprudential perspective ; they can be used more broadly to understand the aggregate implications of banks ’ dynamic responses to stress. the major advantage of these models is that they account for the propagation and amplification of shocks across the banking system and the real economy. today ’ s stress - testing framework, with its micro - and macroprudential elements, is the result of sustained improvements since the financial crisis thanks to the ongoing involvement of all stakeholders. the continued importance of stakeholder involvement is already apparent – discussions about the design of the long - term stress test strategy in europe are under way within both the ecb and the european banking authority. without pre - empting future discussions about this strategy, our experiences so far have shown the benefits of including top - down approaches in supervisory assessments, and of considering the wider, macroprudential dimensions of stress - testing in particular. looking ahead, i believe that top - down stress test models could play a more important role in disciplining banks and reducing their incentives to systematically underestimate vulnerabilities. countercyclical macroprudential policy these models will also help micro - and macroprudential authorities to address challenges in the current macro - financial environment. over the past few months, we have observed a deteriorating global economic outlook and increasing uncertainty. this environment might put pressure on banks ’ profitability and hamper their intermediation capacity as margins become squeezed and the flow of new business slows down. under these conditions, it is particularly important that banks remain resilient and can withstand adverse shocks. since the financial crisis, the resilience of euro area banks

as the share of household wealth managed by professional asset managers increases, raises the need for good governance, more financial education, and transparency. there is a crucial need for adequate information to households. recent developments in financial markets support the view that households may not be a position to make informed choices owing to a lack of financial sophistication. they do not fully grasp the risks inherent to their investment decisions, even more so, if these investments have medium to long - term horizon. most households today simply do not have the time, skill or the access to the relevant information in order to manage themselves their long - term savings. they depend on professional asset management for these purposes. however, the interaction between sophisticated asset managers and financially unsophisticated households has its own risks ( for both sides ) – requiring supervision and consumer protection in order to avert contagion and reputation effects. the role of private pension funds in financial markets let me now turn to the role of pension funds in the financial system and their interactions with and implications for monetary policy : from a monetary policy viewpoint, given the interactions between financial market developments and monetary policy decision - making it is important to monitor and understand the factors driving the structures of the financial system. furthermore, a well - functioning, liquid and deep financial market is essential for central banks as it better ensures that high quality information about economic fundamentals can be extracted from financial market prices. owing to the fact that pension funds are stable long - term investors with sophisticated investment strategies implies that they potentially play an important role in the shaping of the financial market. hence, the growing importance of pension funds, as illustrated in the strong growth of pension fund assets, is therefore likely to enhance the efficiency, depth and liquidity of the financial markets. this may contribute to improving the functioning of the financial system and, in turn, may foster a smoother transmission of monetary policy. in this light, it may be useful to briefly dwell on the recent trends in terms of pension fund investment structures measured by the allocation of financial assets. chart ii thus illustrates that bills and bonds issued by the public and private sectors is the predominant asset class constituting around 39 % of total pension fund assets in 2006. however, the importance of bonds as an investment class has been waning somewhat in recent years reflecting a reallocation of pension fund assets towards allocations in shares and investment funds. especially, pension funds ’ investment in mutual funds increased markedly over the past years : from 8 % of total