. this exercise will include three components. the first is a supervisory risk assessment addressing key risks in the banks ’ balance sheets, including liquidity, leverage and funding. the second is the asset quality review that will assess credit exposures, on - and off - balance sheet positions and domestic / non - domestic exposures. the third component is the stress test that will build on and complement the asset quality review by providing a forward - looking view of banks ’ shock - absorption capacity under stress. this process has already started. after a pilot phase during which the ecb called for – and subsequently integrated – feedback from the banks, the ecb recently sent out the templates for data collection. in this context, let me also touch upon the treatment of sovereign credit risk in the comprehensive assessment. in line with the current legal situation in crdiv / crr the pointin - time balance sheet assessment will apply a “ zero risk ” weighting for banks ’ sovereign debt holdings. however, in the medium term it makes sense from a prudential point of view that assets are being weighted according to their riskiness and not according to conventions which might not reflect reality. this should however be done in a coordinated fashion at international level by the relevant competent forum, the basel committee for banking supervision, which has acknowledged this common sense principle but allowed for exceptions at the local level, which were exercised in the eu. the second issue that i wanted to bring up in the context of the establishment of the ssm is the separation of monetary policy and supervision. starting next autumn, both monetary policy and banking supervision in the euro area will fall within the remit of the ecb. this situation brings several possible conflicts of interest between supervision and monetary policy. the discussion on these possible conflicts is sometimes somewhat blurred. therefore, let me be clear on what these possible conflicts may entail : first, a banking supervisor may have an incentive to delay or avert an interest rate decision of the central bank in order to disguise interest rate risks on banks ’ balance sheets or to prevent those risks from materialising. second, the banking supervisor may want to send an unviable bank into resolution which has large amounts of outstanding central bank borrowings. in this situation, the central bank may have an incentive to delay or object to the resolution of this bank to avoid a default on the outstanding monetary policy operations. of course, all eurosystem credit operations are collateralised but the resolution of collateral can be a lengthy process and

contain the virus become available. two alternative scenarios serve as an illustration of the wide range around the baseline scenario. the mild scenario assumes that the virus is successfully contained in the post - lockdown transition period and there is no resurgence in infections. thus, the economy recovers gradually towards normal levels of activity. in contrast, the virus makes a strong resurgence under the severe scenario and strict lockdown measures are therefore extended. these are assumed to be more damaging to economic activity than under the baseline scenario with lower real gdp growth and more subdued inflation. it is worth noting that the effect of the pandemic on inflation 1 / 6 bis central bankers'speeches dynamics is ambiguous due to competing effects, which could cause inflation to increase or decrease. the downturn in the economy will result in substantial economic slack, which would tend to weaken inflation dynamics. but the pandemic has also caused supply chains to be constrained and this may continue, which would tend to drive prices up. overall, it is likely that that the substantial economic slack will dominate and result in weak inflation dynamics over the medium - term. ( figure 4 : eurosystem staff macroeconomic projections – scenarios ) in general, the eurosystem baseline projections for growth are below those of other forecasters2 with the exception of the oecd forecasts that were published on wednesday. all forecasters acknowledge the prevailing very high levels of uncertainty. the oecd produces two scenarios. in their “ single - hit ” scenario, the current containment measures are assumed to be largely successful in containing the outbreak allowing a gradual recovery in growth and employment over the remainder of this year and in 2021. in the “ double - hit ” scenario, there is a second peak of infections in the autumn. the level of gdp in 2021 in the ecb baseline scenario is roughly the same as the oecd ’ s “ single - hit ” scenario. * * * the june monetary policy decision this provided the context to last week ’ s meeting where i joined my colleagues on the governing council of the ecb for one of our regular meetings where we set monetary policy for the euro area. we took a number of decisions to ensure that the stance is appropriate to achieve our price stability objective over the medium - term. these decisions reflect the unprecedented downturn in the economy and the deterioration in the outlook for growth and inflation. the monetary policy stance must maintain favourable financing conditions for all sectors of the economy and across countries. firm demand for credit is particularly strong now given