parameters. a central bank must be reliable, particularly in times of great uncertainty. as abraham lincoln said : don ’ t change horses in mid - stream. recently, calls to adapt our inflation objective have been made more frequently, especially in the light of rising inflation rates. however, growth is still fragile and the inflation path still not sustainable, particularly in view of domestic price pressures. in this context, how much longer can we continue to talk about even lower rates as being an option? considering the importance of credibility for a central bank, we should not delay in making necessary adjustments to our language and actions. and yet, we should not be hasty. the fragility of the recovery calls for great caution. low interest rates and an accommodative policy remain appropriate in the current context. adapting to new circumstances takes time. impact of monetary policy on banks for we are aware that our measures have side effects and that these become more pronounced the longer the unconventional measures last. let me emphasise that these measures are temporary. they are not a permanent part of our active toolbox. but more on that later. to mitigate risks as far as possible, we closely monitor the broader repercussions of our monetary policy. we pay special attention to insurance companies and pension funds, and above all to banks, which play a key role in the transmission of our monetary policy. let ’ s first of all take a look at the banks : ecb analyses show that our measures are having a positive impact overall on bank profitability. 1 over the longer term, however, abnormally low or negative interest rates, together with a very flat yield curve and negative term premia, can have adverse effects. 2 those banks whose business depends heavily on maturity transformation and on deposit - based 2 / 5 bis central bankers'speeches refinancing are being hit particularly hard. and as it is difficult to pass negative interest rates onto retail customers and as the introduction of fees provides only limited remedy, some of the banks will have to adapt their business models. also, consolidation will continue to be necessary to increase long - term efficiency. we are already seeing now that concerns about the future profitability of banks are affecting their share prices. the euro area bank index fell by around 40 % between august 2015 and august 2016, for example. this decline was driven by, among other things, a worsening outlook for the global economy and growing concern about the effects of the low interest rate environment and non - performing

, where individual countries were affected almost immediately after the thai baht collapsed in mid - 1997, partly because of perceptions and the herd - like reactions of international investors. in the case of this group of countries, contagion worked mainly through the withdrawal of short - term foreign financing to banking institutions, trade financing, and all forms of foreign loan facilities. • second, there was a further group of countries that were affected only gradually through a decline in the flows of portfolio investments from industrial to developing countries. emerging market economies with fledgling capital markets were mainly affected with some time lags by the change in the attitude of the managers of major institutional investment funds who at some stage decided to convert high - yielding, high - risk assets into low - yielding, high - quality assets. south africa is a good example of such a country that suffered in the wake of the east asian crisis, mainly as a result of a large - scale withdrawal by nonresidents of portfolio investments previously made in the country. • third, another group of countries representing mainly exporters of primary products, metals and minerals were affected with an even longer time lag by depressed world economic conditions created by the east asian cum global financial market crisis of 1997 / 98. not all countries have therefore been affected in the same way by the global financial crisis of the past two years, and not all countries can therefore rely on the same protective measures to prevent the same disastrous effects in future. there are, nevertheless, many commonalties in the challenge for monetary policy, despite the differences in conduits followed in the transmission of contagion to the various countries. whether a balance of payments deterioration takes place through an outflow of short - term finance and the withdrawal of loan funds, or through the repatriation of previously invested portfolio funds, or through a decline in exports, the proximate monetary effects are more or less the same : • first, the overall supply and demand conditions in the market for foreign exchange will change and a short supply in foreign currency may develop. some pressure for depreciation will therefore be exerted on the exchange rate. • second, liquidity conditions in the domestic money and capital markets will tighten, and upward pressure will be exerted on interest rates and yields on financial assets. • third, banking institutions will lose liquidity and their capacity to provide loans to their domestic clients will be reduced. • fourth, inflationary pressures will emerge within the economy, particularly in a relatively open economy where import