means of loans to member states, but this would bear on the public debt of the countries concerned, bringing the bank - sovereign loop back into the picture. the comprehensive assessment of the main european banks … with a view to the launch of the ssm, the ecb and the national supervisory authorities are working to undertake a comprehensive assessment of the soundness of the significant euroarea banks, those that will fall under the direct supervision of the ssm. this assessment consists of thorough analysis of each bank ’ s risk profile, comprising an overall balance - sheet assessment ( bsa ), including an asset quality review, and a stress test. the exercise will also cover other relevant aspects of banks ’ business, including leverage, corporate governance and organization. the comprehensive assessment is designed to make sure that the area ’ s main banks are managed in a sound and prudent manner, helping to dispel market concerns over their soundness and risk profiles. significantly, from the outset the assessment will also foster confidence in the ssm itself, reinforcing mutual trust among participating countries. it will therefore be a fundamental step in normalizing wholesale markets and restoring the banking system to its principal, fundamental role of supporting economic activity and growth. in order to attain these objectives, the comprehensive assessment must be completely transparent, as regards not only results but also process and methodologies. the appropriate involvement of external reviewers may enhance the credibility of the exercise. attention must obviously be paid to potential conflicts of interest and problems of confidentiality. also, level - playing - field issues among participating banks must be avoided. the design of the balance - sheet assessment must recognize that national accounting and supervisory practices differ radically, especially in the definition and measurement of nonperforming loans ( npls ). the european banking authority ( eba ) is working to make definitions uniform across systems and has recently issued a consultation paper on the matter. this is a step in the right direction and should be finalized in time for its results to be used for the bsa. in any case, the bsa requires a de facto harmonization of npl definitions. national practices also differ substantially in the measurement of risk - weighted assets, the denominator of regulatory capital ratios. differences in the models used by banks to compute capital requirements – or in the approaches adopted by supervisors for validating them – may undermine the comparability of banks ’ capital, so the bsa will have to pay close attention to the way in which these models compute

recommended policy path. at the bank, we think of this inherent uncertainty as creating a “ zone ” within which our interest rate setting has a reasonable probability of bringing inflation back to target over a reasonable time frame. so uncertainty exists even when models are performing well. but there are additional uncertainties, including those related to model - disrupting structural changes, such as those that were triggered by the global financial crisis. these additional uncertainties may introduce a bias in the model ’ s projections, making it more likely that its suggested interest - rate path will lead to missed targets. and, of course, there is uncertainty generated by the risks to our inflation forecast. we begin our interest rate deliberations with the policy path recommended by our models, but we are always mindful of the uncertainties, including the range of risks that might cause us to undershoot or overshoot our target. all of these sources of uncertainty define the zone in which we can be reasonably assured that policy is on track. factors that increase uncertainty — such as 5 / 7 bis central bankers'speeches geopolitical risks — can widen this zone temporarily. conversely, resolution of uncertainties can narrow it. this is the essence of the bank ’ s risk - management approach to monetary policy. interpreting, weighing and managing those risks approaches art, but the art is built on the science of our models. allow me to make three related points. first, the starting point matters to a monetary policy decision. if inflation is on target and is projected to be on target in two years, then various risks can be interpreted and managed in an even - handed manner. but our current situation serves as a counter example. while we project that inflation will be sustainably at target around the middle of next year, we are well aware that the lingering aftermath of the crisis has left the canadian economy with persistent excess capacity, and inflation has been in the lower half of our target range for some time. second, the uncertainty in economic models makes it ill - advised to reduce the conduct of monetary policy to a simple mechanical rule. the fact that there are so many sources of uncertainty, some of which cannot be quantified, makes the risk - management exercise highly judgmental. a corollary is that we need to explain our underlying reasoning very carefully to ensure that it is well understood. to this end, the bank has taken a number of measures to increase its level of policy transparency in recent years. third, uncertainty does not equal indec