on the medium term acknowledges that monetary policy cannot steer price developments in the short term. at the same time, it reflects the notion that measured policy reactions to threats to price stability can prevent unnecessary volatility being introduced into the economy. the ecb's quantitative definition of price stability has established a range of inflation outcomes deemed compatible with price stability. the range definition that we have adopted reflects the degree of uncertainty attached to the meaning and measurement of the concept of price stability. it allows uncertainty about the measurement bias in the hicp to be accommodated within the range, while ensuring that " true " price stability ( zero inflation ) is included. moreover, the definition provides a " buffer " in the face of economic shocks and avoids the impression that monetary policy is equipped to fine - tune price developments with a high degree of precision. regarding the definition of price stability, i wish to emphasise two further aspects. first, it is defined with reference to the euro area as a whole. the ecb has made it very clear that monetary policy cannot, and should not try to, address regional or local economic problems. secondly, the governing council aims to avoid both inflation and deflation. we are well aware of the potential problems associated with the hitting of the zero lower bound on nominal interest rates and the attendant potential loss of effectiveness in the conduct of monetary policy under conditions of persistent price deflation. this is an important reason why there is a safety margin, in the form of small positive inflation rates below 2 %, in our definition. in order to form an appropriate assessment of the success or failure of the ecb's monetary policy, the medium - term orientation of the ecb's policy should be borne in mind. monetary policy needs to be evaluated over a sufficiently extended period. the ecb's policy can be considered successful if price stability, according to our definition, has prevailed for most of the time and if variability of inflation has remained low. from the start, the definition set by the governing council has served very well the purpose of anchoring medium - term inflation expectations. this is evident from inflation expectations derived from market surveys or from the analysis of yields on long - term bonds. this stability of inflation expectations is remarkable given that we had to face substantial shocks to the price level in the euro area – mainly stemming from energy and food prices – over the past three years. the definition of price stability has thus reduced inflation uncertainty, thereby lowering the risk premia included in longterm

innovation and other market developments. as you know, the dodd - frank act created a council of regulators, the financial stability oversight council, to coordinate efforts to identify and mitigate threats to u. s. financial stability across a range of institutions and markets. the council ’ s monitoring efforts are well under way, and this new organization has contributed to what has been a very positive atmosphere of consultation and coordination among its member agencies. the council is also moving forward with its rulemaking responsibilities, including rules under which it will be able to designate systemically important nonbank financial institutions and financial market utilities for additional supervisory oversight, including by the federal reserve. for its part, the federal reserve has also made organizational changes to promote a macroprudential approach to regulation. among these changes is the establishment of high - level, multidisciplinary working groups to oversee the supervision of large, complex banking firms an appendix to this testimony provides details on the federal reserve's progress in meeting its responsibilities under the dodd - frank act. bis central bankers ’ speeches and financial market utilities, with a strong focus on developments that have implications for financial stability. we have also created an office of financial stability policy and research to help coordinate our efforts to identify and analyze potential risks to the broader financial system and to serve as liaison with the council. a second major objective of financial reform is to mitigate the threats to financial stability posed by the too - big - to - fail problem. here the dodd - frank act takes a two - pronged approach. the first prong empowers the federal reserve to reduce a sifi ’ s probability of failure through tougher prudential regulation and supervision, including enhanced risk - based capital and leverage requirements, liquidity requirements, single - counterparty credit limits, stress testing, an early remediation regime, and activities restrictions. the federal reserve and other agencies face the ongoing challenge of aligning domestic regulations with international agreements, including the basel iii requirements for globally active banks. these efforts are going well ; in particular, the federal reserve expects to issue proposed rules on the oversight of sifis later this summer and, working with other banking agencies, is on schedule to implement basel iii. ending too - big - to - fail also requires allowing a sifi to fail if it cannot meet its obligations – and to do so without inflicting serious damage on the broader financial system. thus, the second prong of the dodd - frank act ’ s effort to end