their activity and their complexity. the following step was to impose capital surcharges, on a staggered scale from 1 % to 2. 5 %. the second group of reforms refers to resolution, which involves an authority restructuring a bank through the use of specific tools, with the aim of ensuring the continuity of the bank ’ s critical functions and thus preserving financial stability. the essential characteristics all resolution regimes must meet were listed in the fsb document entitled “ key attributes for effective resolution regimes ”. this has been one of the most important agreements reached to date on the matter. resolution in the european sphere, the bank recovery and resolution directive have recently been approved, incorporating the fsb guidelines into the acquis communautaire. in spain, law 9 / 2012 of 14 november 2012 on the restructuring and resolution of credit institutions had already foreseen several of the elements required in this area by the fsb and by the directive. the resolution frameworks, in step with the text of the directive, are structured in three phases : prevention ; early intervention ; and resolution in the true sense of the term. 1. - in the preventive phase, recovery and resolution plans must be designed. recovery plans are drawn up by the banks themselves and should include a series of actions relating to the institution ’ s capital and liquidity in order, should the case arise, to restore its financial equilibrium. supervisors must revise these plans, identifying potential impediments to their proper application. resolution plans are agreed by the resolution authorities and seek to establish a catalogue of actions that the authorities might take in situations in which a credit institution is close to non - viability. 2. - for the early intervention phase, supervisors are entitled to take measures before a bank ’ s financial position deteriorates irremediably. these measures have helped bolster conventional tools, such as limiting dividend pay - outs. these new measures include most notably the possibility of altering a bank ’ s business strategy or the power to call for legal changes in a bank ’ s structure. 3. - the third, resolution phase is what leads to the reorganisation of a credit institution, making use of specific mechanisms. most prominent in this connection has been the socalled bail - in, involving rescuing a bank from the inside, as opposed to the traditional publicsector bail - out. a bail - in entails the possibility of cancelling – or converting into capital – the entitlements of specific shareholders

expanded asset purchase programme as a legitimate tool of monetary policy and voted by a large majority to deploy it immediately. equal sharing of the attached risks would have been more consistent with the singleness of monetary policy. the decision to let the balance sheets of the single ncbs carry the risk of losses on government bond purchases reflects a concern within the governing council that in the present institutional framework such a monetary policy measure might lead to transfers of resources between countries without the approval of the competent bodies. in any case, the more successful the programme proves to be in curtailing the macroeconomic risks faced by the euro - area countries, the more it will also reduce the risks to the ncbs ’ balance sheets. asset purchases can transmit effects to the economy through a variety of channels. they exert downward pressure on medium - to long - term interest rates, directly for the assets included in the programme, and indirectly for all the others through portfolio reallocations. they encourage bank credit by making it relatively more profitable than buying government securities and by reducing the cost of funding. they sustain inflation expectations and confidence. they help to ensure that changes in the exchange rate are consistent with cyclical developments : although the euro exchange rate is not a monetary policy objective, any variations linked to the monetary conditions in the different currency areas are an important component of the transmission mechanism. the effects on financial asset prices and, looking ahead, on real asset prices can stimulate consumption. the risk that the programme could lead to excessive price increases for real and financial assets, such as to threaten financial stability, is limited in the current climate. there are no indications that any widespread imbalances are forming in the euro area at the moment : credit is still languishing, assets do not appear to be generally overpriced ; overall the propensity to take risks is still low. should tensions emerge in local market segments, they would be countered by the national authorities with targeted macroprudential measures ( such as those already introduced in some countries ) without altering the expansionary stance of monetary policy. the purchase of government securities does not make the introduction of reforms to increase the growth potential of the euro - area countries any less necessary or likely. indeed, it can foster them by improving the macroeconomic outlook and reducing its uncertainty. the effects of the programme have already been seen in part on the financial and currency markets. lower interest rates and the depreciation of the exchange rate could bring euroarea inflation to levels more consistent with