26 in the u. s. valuation metrics for the euro area as a whole suggest that residential property prices are broadly in line with fundamentals and below their historical average, with the opposite holding for prime commercial property, given continued strong price increases. likewise, our internal model - based assessments of the euro area corporate bond market do not signal overvaluations and excessive bond premia to date. in the present context, there is nevertheless, the need to remain vigilant and continuously monitor developments. monetary policy must however remain focused on inflation and / or on growth. therefore, such risks need to be addressed by policy instruments dedicated to ensuring financial sector resilience while curbing financial cyclical excesses – that is, by supervision and macroprudential policy. macroprudential policy has two main objectives : to enhance the resilience of the whole system and to smoothen the financial cycle, i. e. the fluctuation of credit, leverage and asset prices that may lead to boom - bust episodes. 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 focused monetary policy. an effective macroprudential policy requires policy interventions in a timely and bold manner, significantly affecting the normal behaviour of financial markets or financial institutions. this poses challenges. first, should there be a need for policy intervention measures need to be admittedly intrusive, going well beyond the new capital and liquidity regulatory framework. secondly, the macroprudential tool - kit that has been legislated – including the one entrusted to the ecb / ssm – is centered on banks. instruments would need to address other financial activities and institutions, notably those pertaining to the shadow banking sector. this growing sector is posing new potential risks, albeit in an incipient way, as identified in the ecb financial stability review. regarding the instrument tool - kit at its disposal, the ecb may use all macroprudential instruments laid down in the european legislation crd iv / crr, in the sense that it may topup specific macro -

prudential measures if it considers actions by national designated authorities as insufficient to mitigate systemic risks. it covers capital instruments, such as the counter - cyclical capital buffer, the systemic risk buffer, capital surcharges of systemically important institutions as well as liquidity instruments, such as the liquidity coverage ratio. in addition, the ecb can also increase risk weights on real estate exposures or set higher limits on large exposures. bis central bankers ’ speeches in a single currency area, macro - prudential policies are particularly important to deal with sectoral and regional risks that cannot be accounted for by a common monetary policy. measures such as the caps on loan - to - value ( ltv ) or debt - to - income ( dti ) ratios are suitable instruments to address these developments. in this context, recent research suggests that exposure - based measures, such as ltv and dti could be more efficient than capital - based measures. on the other hand, they may generate important cross - border spillovers and leakages, and moreover, are now solely in the remit of national authorities. implementing them will therefore require co - ordination and the ecb will play an active role to facilitate this in the euro area. now, the present tools of macroprudential policy are mostly focused on the banking sector while important risks are emerging from the steadily growing shadow banking sector. the sector is engaged in maturity transformation and, while mostly funded via equity, shadow banks are also subject to the short - term redemption risk. if they experience substantial redemptions, they may, like banks, be forced to promptly sell assets to fulfil their obligations, which may give rise to fire sales. this is particularly worrisome, since 98 % of almost 95 thousand non - money market investment funds operating in the euro area in 2014 are open - ended funds, which means that the investors can redeem their shares in the funds at any time. moreover, the funds ’ buffer of liquid assets has dropped in recent years thereby increasing the illiquidity risks. in this context, it is necessary to intensify the supervision of systemically important non - bank institutions the u. s. fed has been given the competence to place non - bank financial institutions within the supervised perimeter. some shadow banks grew too - big - to - fail and hence, should be subject to the same surveillance as global systemically important banks ( g - sibs ). in fact, the financial stability