, such risks need to be addressed by policy instruments dedicated to ensuring resilience while curbing cyclical excesses – that is, supervision and macroprudential policy. in the current situation, we see that risks stemming from excessive risk - taking or any misaligned asset prices are contained in the euro area. this assessment is supported by continued moderate private sector credit expansion and leverage. however, we have certainly noticed that equity prices have continued to rise – albeit from previously low levels – and that sovereign bond yields are historically low. moreover, ecb estimates suggest that corporate bond risk premia are moving towards levels seen before the financial crisis. in addition, co - movements in financial markets have increased since summer 2014. these developments justify the need for close monitoring with a particular focus on asset markets but also on banks, insurers and pension funds as well as the less - regulated nonbank financial sector and the non - financial private sector. as financial and business cycles are not always aligned across countries and sectors in the euro area, area - wide monetary policy needs to be complemented by more targeted macroprudential policy. unlike monetary policy that influences the euro area across the board, macroprudential policy instruments can be applied in a granular manner, addressing risks at the country, sector and institutional level. macroprudential policy therefore provides the most appropriate instruments for mitigating financial stability risks, thereby supporting the price - stability oriented monetary policy. in that respect, concerns about the stability of the banking system have been addressed over recent years, through efforts to put a comprehensive regulatory framework in place and notably the set - up of banking supervision at the european level with the establishment of the single supervisory mechanism ( ssm ). the regulatory framework for banks is at this stage largely in place. but a few important elements such as leverage ratio, the net stable funding ratio ( nsfr ) and total loss absorbing capacity ( tlac ), which should be finalised in order to complete our framework for banks, are outstanding. in addition, macroprudential tools for the banking sector are also available but should be extended to also encompass ltv ( loanto - value ) and dti ratios ( debt - to - income ), the leverage ratio, limits to specific large exposures to shadow banks and to maturity transformation. given the achievements in the regulatory framework for banks and the changing landscape in the euro area financial system, our attention naturally shifts to the more opaque and less regulated parts

policy short - term rates are low because of these developments, not the other way around. at the same time, monetary policy needs to remain accommodative in order to normalise inflation levels close to our objective, thus leading to higher interest rates. consequently, the ecb monetary policy measures that have been taken since summer last year, including most recently the expanded asset purchase programme ( eapp ), not only contribute to maintaining price stability but are also beneficial for financial stability. specifically, i expect the current monetary policy stance to strengthen aggregate demand in the euro area on the back of lower real interest rates and improved confidence. higher actual and expected inflation closer to our price stability objective also help alleviate the real debt burdens of households, firms and governments, which otherwise could have been subject to adverse debt dynamics. credit worthiness of firms and households should improve on account of higher net worth induced by asset price increases. moreover, as bank funding cost should continue to decline, i expect to see a further easing of credit standards on loans to enterprises as was already noticeable in the latest ecb bank lending survey. our policy is indeed working according to plan. conditions in a host of asset markets, from equities to bonds or foreign exchange, have reacted in the expected way through the bis central bankers ’ speeches portfolio rebalancing transmission channel of monetary policy. in the euro area, equity prices have gone up by 13 % since january. corporate bond yields came down by 49 basis points since june last year and the most recent ( march ) data on bank lending rates shows that rates decreased by 70 basis points, with respect to last year. this last point shows that our policies are also improving the credit channel, which is confirmed by the fact that credit ( bank loans ) to the private sector reached a turning point, as shown by net positive monthly flows in the last three months. more expansionary financial conditions are supporting the recovery as well as the increase of inflation expectations. in fact, the 5y / 5y ahead swap rate went up from 1. 6 % in january to 1. 8 % at present. no policy intervention is without side effects. indeed, as i mentioned already, a very accommodative monetary policy stance geared towards maintaining price stability in the presence of already generously priced asset markets may also lead to potential risks for the stability of the financial system. nevertheless, monetary policy must be focused on inflation and / or growth according to the different central bank mandates and therefore