work reduces the hardships inflicted by difficult economic times and helps ensure that our economy is producing at its full potential rather than leaving productive resources fallow. in the longer term, minimizing the duration of unemployment supports a healthy economy by avoiding some of the erosion of skills and loss of attachment to the labor force that is often associated with long - term unemployment. notwithstanding this observation, which adds urgency to the need to achieve a cyclical recovery in employment, most of the economic policies that support robust economic growth in the long run are outside the province of the central bank. we have heard a great deal lately about federal fiscal policy in the united states, so i will close with some thoughts on that topic, focusing on the role of fiscal policy in promoting stability and growth. to achieve economic and financial stability, u. s. fiscal policy must be placed on a sustainable path that ensures that debt relative to national income is at least stable or, preferably, declining over time. as i have emphasized on previous occasions, without significant policy changes, the finances of the federal government will inevitably spiral out of control, risking severe economic and financial damage. 1 the increasing fiscal burden that will be associated with the aging of the population and the ongoing rise in the costs of health care make prompt and decisive action in this area all the more critical. although the issue of fiscal sustainability must urgently be addressed, fiscal policymakers should not, as a consequence, disregard the fragility of the current economic recovery. fortunately, the two goals of achieving fiscal sustainability – which is the result of responsible policies set in place for the longer term – and avoiding the creation of fiscal headwinds for the current recovery are not incompatible. acting now to put in place a credible plan for reducing future deficits over the longer term, while being attentive to the implications of fiscal choices for the recovery in the near term, can help serve both objectives. fiscal policymakers can also promote stronger economic performance through the design of tax policies and spending programs. to the fullest extent possible, our nation ’ s tax and spending policies should increase incentives to work and to save, encourage investments in the skills of our workforce, stimulate private capital formation, promote research and development, and provide necessary public infrastructure. we cannot expect our economy to see ben s. bernanke ( 2011 ), “ fiscal sustainability ”, speech delivered at the annual conference of the committee for a responsible federal budget, washington, june 14. bis central bankers ’ speeches grow

it anew. like their counterparts in the euro area, our banks have strengthened their balance sheets and capital positions in recent years, and this ensures that the sector is wellprepared to adapt to risks as, and when, they materialise. our stress tests also confirm that capital remains above regulatory requirements even under extreme scenarios, and that banks are operating with healthy liquidity buffers. profitability is also improving, so it is opportune to strengthen capital buffers rather than to have to re - build them in a potentially less benign environment at some point in the future. 3 / 5 bis - central bankers'speeches it is less painful to provide adequately for credit risks and the stock of doubtful loans through the cycle, rather than having to deal with a potential increase in non - performing exposures at some other time in the future. thus, an increase in forborne loans - mostly reflecting the expiration of pandemic related loan moratoria - need to be addressed at some stage or another. in this respect, i am pleased to note that banks have proven to be quite conservative when providing for risks during the pandemic. i encourage banks to be proactive in complying with micro and macro prudential policies when formulating distribution policies going forward. foresight is key, as the generation of resilience from within is ultimately what drives the long - term value of any firm's equity and its stability. of course, macroprudential policy has to do its part. efficiency demands of us to pinpoint specific sources of risks and, where possible, choose targeted measures over generic alternatives. in certain circumstances, specific tools such as adjusted riskweights, borrower - based measures or sectoral systemic risk buffers are better alternatives to a generic tool which affects all segments of credit indiscriminately, hindering the funding of the economy's productive capacity, which is much needed for the economy to keep growing. lastly macroprudential policy demands from banks a higher level of diversification and productive investment. as past financial stability reports indicate banks'loan portfolios are highly concentrated towards real estate. this is a structural characteristic which is very well documented, so is the fact that mortgages are the prime drivers behind this concentration. macroprudential policy has a role to play here to address systemic concentration risks. but, apart from policy prescription, the importance of portfolio diversification cannot be underestimated. similarly, banks have a crucial role