not only tracks the resilience of individual banking institutions but also accounts for how banks interact with each other and how their actions feed back to the economy. it internalises the fact that banks may deleverage in response to negative developments. it subsequently, takes into account the extent to which this adverse credit supply shock may aggravate the downturn leading to a further deterioration in banks ’ balance sheets. this framework complements the eu - wide stress testing exercises conducted under the aegis of the european banking authority ( eba ), which are mainly of a micro - prudential nature. a macroprudential exercise conducted in 2018 for banks directly supervised by the ecb4 using the baseline and adverse scenarios of the recent eba stress test, confirmed the general resilience of the euro area banking system. bank deleveraging and feedback to the real economy would however lead to a substantial drop in lending to the non - financial private sector. this would lead to an additional fall in gdp of 1. 6 % across the euro area, on top of the original gdp shocks in the adverse scenario over the three - year horizon. this analytical framework can also help us to calibrate macroprudential policies. the framework shows, for instance, that the timing of the activation of capital - based measures matters for their effectiveness. if a new policy tool is introduced in good times, banks are able to build up additional capital by retaining their profits, and they do not need to shrink their loan books to improve their capital ratios. a new capital policy tool that is introduced in bad times however is likely to trigger a reduction in credit and place an additional drag on the economy. bad timing increases the cost of macroprudential and regulatory interventions, potentially rendering such measures counter - productive. risks and macroprudential policy for the non - bank financial sector let me now turn to the non - bank financial sector which is becoming ever more important for our financial system. in my view, work on the regulatory and, in particular, the macroprudential framework for this sector is still in its early stages. the share of market - based financing is likely to continue growing, not least in view of the efforts made in the context of the capital markets union, which will have tangible benefits for the euro area economy as a whole. more integrated and deeper european capital markets will promote a more diversified funding base for the european corporate sector. this, in turn, will help firms weather a possible shock

michelle w bowman : high inflation and the outlook for monetary policy speech by ms michelle w bowman, member of the board of governors of the federal reserve system, at the american bankers association community banking conference, palm desert, california, 21 february 2022. * * * before we get to our conversation on community banking, i would like to briefly discuss my outlook for the u. s. economy and my view of appropriate monetary policy. 1 as i see it, the main challenge for monetary policy now is to bring inflation down without harming the ongoing economic expansion. inflation is much too high. last year i noted that inflationary pressures associated with strong demand and constrained supply could take longer to subside than many expected. since then, those problems have persisted and inflation has broadened, reaching the highest rate that americans have faced in forty years. high inflation is a heavy burden for all americans, but especially for those with limited means who are forced to pay more for everyday items, delay purchases, or put off saving for the future. i intend to support prompt and decisive action to lower inflation, and today i will explain how the fed is pursuing this goal. in the near term, i expect that uncomfortably high inflation will persist at least through the first half of 2022. we may see signs of inflation easing in the second half of the year, but there is a substantial risk that high inflation could persist. in january, the consumer price index rose to a 12 - month rate of 7. 5 percent, which, consistent with other recent monthly readings, was even higher than expected. employment costs for businesses, as measured by average hourly wages, also rose last month. and continued tightness in the labor market indicates that upward pressure on wages and other employment compensation is not likely to moderate soon. my base case is that inflation will moderate later this year, which will depend, in part, on appropriate actions by the federal open market committee ( fomc ). but with wage growth lagging behind inflation for the past year, many families may find it challenging to make ends meet and continued rising home prices will likely prevent many from entering the housing market. in addition, rising costs and hiring difficulties continue to be burdens for small businesses. turning to the labor market, which continues to tighten, indications are that the omicron infection surge earlier this year has not left a negative imprint on the economy or slowed job creation. i expect to see continued strength in the job market this year, with further gains