took on excessive debt had to deleverage. and that combination depressed both credit supply and demand. so the re - regulation of the financial sector is in fact a part of the growth agenda. and major progress has now been made in redressing the mistakes of the pre - crisis era. the global regulatory agenda, steered by the g - 20, has made the sector considerably more robust in terms of capital, leverage, funding and risk - taking. common equity tier 1 ratios in the euro area have improved substantially, rising from less than 7 % for significant banking groups in 2008 to more than 14 % today. leverage ratios are now close to 4 % for large banks. the liquidity coverage ratio was implemented last year, and most euro area banks are already complying 1 / 4 bis central bankers'speeches with the net stable funding ratio ahead of its implementation in 2018. it is true that this regulatory agenda, which has evolved profoundly in its design over the past eight years, may also have created some uncertainties, for instance over steady state capital levels, which are reflected in bank share prices. indeed, uncertainty over future capital requirements can give rise to a risk premium, which weighs on banks ’ cost of finance and acts as a deterrent to expanding activities or supplying credit to the economy. so now is the time to finalise the regulatory agenda and enter a period of stability. the focus should be on implementation, not on new design. regulatory measures should be implemented in a balanced way that ensures a level playing - field globally. and while marginal adjustments are possible, there should be no rolling back on what has been decided. re - regulation has led to welcome improvements in bank solvency. meanwhile, asset quality has also improved. the non - performing loan ( npl ) ratio has been decreasing in the euro area, even if modestly. critical in this context was the comprehensive assessment of bank balance sheets – including an asset quality review of great depth – which encouraged banks to frontload the strengthening of their balance sheet. while npls remain high in some countries, the problem today is more related to profitability than to the robustness of balance sheets, since coverage ratios are close to 50 % and much of the remainder is collateralised. all this progress has gone hand - in - hand with a steadying economic recovery. increased banking sector resilience has helped shield the recovery from external shocks and sustain its internal momentum. the banking system has been able to weather, among other things, the

crisis in emerging market economies, the collapse in oil and commodity prices, and the consequences of the uk referendum. and healthier banks have provided the necessary supply of credit to maintain the pace of the recovery. the easing in credit supply conditions has been visible in both lending rates and lending volumes. since mid - 2014, bank lending rates have fallen by almost 100 basis points for both euro area households and corporates. small and medium - sized enterprises have benefitted from even larger declines. lending volumes, in turn, have posted positive growth rates for households since end - 2014, and for non - financial corporations since the last quarter of 2015, following multi - year declines. and financing conditions have improved in capital markets too, which has been followed by a pick - up in corporate bond issuance. this credit reversal has in turn supported a second benign characteristic of the recovery : the fact that it has become increasingly driven by domestic sources of growth. domestic demand has now replaced foreign demand as the main driver of growth. over the past two years, domestic demand has on average added more than a percentage point to gdp growth, supported by very accommodative financing conditions. by contrast, net exports, which were a key growth engine for most of the crisis period, have barely contributed to gdp growth since end - 2013 as the global environment has deteriorated. this shift in the composition of growth is important, from an inflation perspective, since it makes the recovery in the euro area less vulnerable to external shocks. indeed, domestic strength has helped insulate the euro area against recent global weakness, which otherwise would have dragged the recovery off track – and with it, the expected pick - up in the path of inflation. the domestic picture is also contributing to a third encouraging development : the strong rebound in employment. this has been driven by a striking reconnection between gdp and employment growth in recent years. 1 the temporary post - lehman rebound in 2010 – 11 was essentially a jobless recovery. the current recovery, however, has reduced the unemployment rate from more 2 / 4 bis central bankers'speeches than 12 % in 2013 to 10 % today. and, besides lower unemployment, the overall labour force has expanded as well in recent years, reflecting increasing labour participation rates. 2 a faster return to full employment – or what economists call the “ non - accelerating inflation rate of unemployment ” – is clearly supportive of price stability, since it heralds a tighter labour market and stronger wage pressures. and while those pressures might be somewhat