ltros in late 2011 and early 2012. in other words, banks seek less insurance against funding shocks from public sources ( the ecb ) and return to the private market place to fulfil their demand for finance. this is all welcome. and we observe with relief the consequences that this process is having for the target - 2 balances, which have dropped by 30 % since the summer of last year. with our decision to lower the rate on our main refinancing operation under forward guidance, and extend the application of the fixed - rate with full allotment policy, we will allow this process to continue without negative implications for market rates. this combination of policies will make money market conditions less dependent on excess liquidity and its uncertain evolution. institutional reform in the financial sector the challenges of conducting and implementing monetary policy in the current environment are a fitting reminder of a more general challenge. monetary policy can support a recovery by shielding it from risks. but monetary policy cannot substitute for structural reforms that tackle problems at their root. the normalisation of money market conditions goes hand in hand with unstable rates because there is more need to improve the health of the banking sector. much has already been achieved. fresh capital has been raised, problematic legacy assets have been removed and, as a result, core tier 1 ratios of the largest euro area banks now stand at 11 %, well above the new basel iii capital requirements. but more must be done and progress is on its way in the form of a european banking union. before the first element of the banking union, the single supervisory mechanism, takes up its role, a comprehensive balance sheet assessment must be undertaken. this task has recently begun. the asset quality review has three specific goals : first, to achieve transparency about the current quality of balance - sheets ; second, to repair balance sheets where necessary ; and third, as a as a result of the first two, to regain the confidence of all major stakeholders in banks. only then will banks be the financiers of the real economy. conclusion let me conclude. five years after the collapse of lehman brothers and one and a half year after the peak of the sovereign debt crisis, the worst seems over. a recovery has started, but it is still in its bis central bankers ’ speeches infancy and fragile. the global environment remains uncertain. structural reform and fiscal sustainability are underway, but must be pushed to completion. financial sector regulation is being thoroughly revamped. steering the economy under these conditions presents formidable

challenges. however, we have a clear mandate : to maintain price stability. our recent decision to cut rates was warranted by our mandate. to ensure the effective transmission of monetary policy we provide forward guidance and provide ample liquidity. but we can only provide an environment conducive to long - term growth. growth itself comes from a structurally sound economy. the banking union and the forthcoming asset quality review are part of structural reforms whose success is key for the economic future of europe. bis central bankers ’ speeches