vitor constancio : presentation of the ecb annual report 2014 to the committee on economic and monetary affairs of the european parliament introductory remarks by mr vitor constancio, vice - president of the european central bank, to the committee on economic and monetary affairs of the european parliament, brussels, 20 april 2015. * * * mr chairman, honourable members of the committee on economic and monetary affairs, ladies and gentlemen, i am honoured and pleased to be back in this committee to present the ecb ’ s annual report 2014 today. this event underlines once again the importance of the dialogue with the european parliament to ensure the accountability and transparency of the ecb ’ s activities. and it is precisely because the ecb considers transparency to be such a vital aspect of accountability and effectiveness that we have this year started to publish accounts of our monetary policy meetings. the publication of the annual report complements our efforts towards greater transparency by describing the actions that the ecb undertook in 2014 with a view to fulfilling its mandate in a challenging environment. forceful action by the ecb was needed to respond to the impairment of the transmission channels of our monetary policy and to the low inflation environment. our monetary policy action was complemented by another major achievement in 2014 : the preparations for and start of operations of the single supervisory mechanism. the specific regime foreseen by the inter - institutional agreement between the ecb and your institution takes into account the need for enhanced accountability for this new task for the ecb. today, i will first look back at the measures taken by the ecb since the beginning of last year to fulfil its mandate. i would then like to discuss the capital markets union project, which, if pursued with sufficient ambition, could unleash the benefits of more robust financial integration and improve the transmission of our monetary policy. the ecb ’ s monetary policy from a monetary policy perspective, the environment we faced in 2014 was very complex and demanding. the muted recovery that had begun in 2013 did not accelerate as initially expected. for the year as a whole, we saw gdp growing by 0. 9 % in the euro area. money growth remained subdued and credit continued to contract, albeit at a gradually declining pace. tight credit standards, combined with elevated and sticky bank lending rates in a large part of the euro area, were viewed as one of the principal causes of the persistent economic slack at the euro area level and, indirectly, as a major source of ongoing disinflation. in

requirements and the capital buffers. over and above supervisory requirements, banks also use equity financing to protect themselves from risk. losses put banks ’ capital ratios under pressure. a bank then has two options to stabilise the ratio required by the market or by supervisors. the first option is to stabilise the capital ratio by granting fewer loans or not prolonging credit lines. however, creditworthy enterprises might then no longer be adequately funded. the second option is to use capital buffers to stabilise lending. this flexible use of buffers is a key improvement in banking regulation since the global financial crisis : during periods of stress, banks should make use of their capital in order to absorb losses and maintain the supply of credit. this reduces the procyclicality of supervisory capital requirements. however, dividends and bonus payments must be temporarily curtailed in order to maintain resilience. supervisors have responded in order to create this very scope for lending : since march 2020, banks have been able to make full use of two supervisory buffers – the capital conservation buffer and the pillar 2 guidance – with no obligation to replenish those buffers rapidly. as in many other countries, the countercyclical capital buffer in germany was lowered to 0 %. in return, however, supervisors also expect banks to temporarily suspend dividend payments. banks, public authorities and policymakers need to be well - prepared now to cope with a rise in the number of insolvencies. thanks to sound economic developments over the past decade, insolvencies fell to historical lows. we should now check our preparedness for a rise in insolvencies : are experienced staff available? can insolvency proceedings be simplified? are any organisational adjustments necessary? thorough preparations can help banks to distinguish “ good ” risks from “ bad ” ones and continue to lend to firms with a sustainable business model. phase 3 : facilitating structural change, limiting vulnerabilities our simulations predict that insolvencies and loss allowances will rise in the future. in the corporate sector as a whole, insolvencies could increase to more than 6, 000 per quarter in the first few months of 2021. that would be fewer than during the global financial crisis, at which time roughly 8, 000 enterprises filed for insolvency each quarter. the increase in relative terms would be the greatest in the manufacturing sector ; this would also be a key driver behind banks ’ loss allowances. 3