european central bank : press conference – introductory statement introductory statement by mr jean - claude trichet, president of the european central bank and mr lucas papademos, vice - president of the european central bank, vienna, 4 october 2007. * * * ladies and gentlemen, the vice - president and i are very pleased to welcome you to today ’ s press conference here in vienna. i would like to thank governor liebscher for his kind hospitality and to express our special gratitude to his staff for the excellent organisation of today ’ s meeting of the governing council. let me now report on the outcome of our meeting, which was also attended by commissioner almunia. on the basis of our regular economic and monetary analyses, we decided at today ’ s meeting to leave the key ecb interest rates unchanged. the information that has become available since our previous meeting has confirmed that the outlook for price stability over the medium term is subject to upside risks. against this background, and with money and credit growth vigorous in the euro area, our monetary policy stands ready to counter upside risks to price stability, as required by our primary objective. the fundamentals of the euro area economy support a favourable medium - term outlook for economic activity. in particular, corporate earnings and profitability have been sustained, employment growth has been robust and unemployment has fallen. however, given the financial market volatility and the reappraisal of risk seen in recent weeks, this assessment is surrounded by heightened uncertainty. in view of the only limited range of new economic data that have become available since our meeting in early september, particular caution needs to be exercised when assessing any potential impact of the financial market developments on the real economy. hence, it remains necessary to gather additional information and examine new data before drawing further conclusions for monetary policy in the context of our medium - term - oriented monetary policy strategy focused on maintaining price stability. accordingly, the governing council will monitor very closely all developments. on the basis of our assessment, and by acting in a firm and timely manner, we will ensure that risks to price stability over the medium term do not materialise and that medium and long - term inflation expectations remain firmly anchored in line with price stability, thereby favouring an environment conducive to sustained economic growth, well - functioning markets and job creation. providing such an anchor for medium and long - term inflation expectations is all the more important at times of financial market volatility and increased uncertainty. as regards the financial markets, we will

. the crisis has also revealed two major lessons for our supervisory framework. the first is that macro - prudential factors should play a much larger role in the approach followed by supervisors. the second is that a common banking supervisor is essential for an efficient monetary union. turning to the first, and again looking back at the pre - crisis period, banking supervision was essentially “ micro - based ”. it mostly focused on ensuring the safety and soundness of individual institutions, while taking the rest of the financial system as a given. the implicit assumption was that stable individual institutions would automatically ensure a stable system. this micro - based supervisory approach was likely to underestimate the systemic component and was not able to internalise and target the negative externalities that could have built up as a result of increased risks for the system as a whole. the lending booms we experienced in some euro area countries before the crisis are a good illustration of the problems arising from an excessive reliance on this micro - prudential approach. during the upswing, banks reported high levels of profitability and low levels of measured risk. both of these factors tend to improve capital ratios, offering a reassuring picture of the solvency of individual banks from a micro - supervisory perspective. yet historical experience shows that rapid credit growth usually comes at the cost of increasing the systemic – or tail – risks, for instance, by lowering lending standards via undiversified housing exposures or excessive reliance on short - term market funding. again, the crisis raised awareness both of the endogenous nature of many systemic episodes of financial instability and of their negative externalities that could be of great importance in determining macroeconomic outcomes. from a policy perspective, the new focus has led to an increased interest in the macro - prudential approach to bank regulation and supervision. in europe, the new regulatory and supervisory infrastructure about to be adopted will provide supervisors with macroprudential tools. 2 european economies face different economic and financial cycles and different types of systemic risk, and their financial sectors still exhibit different structural features. the ecb therefore considers it important that authorities can apply stricter macro - prudential requirements at national level. 3 examples are the counter - cyclical buffer or the possibility for national authorities to adjust risk weights or set stricter criteria, e. g. loan - to - value ratio, for exposures secured on residential or commercial real estate. european central bank : opinion on a proposal for a directive on the access to the activity of credit