is the proposed pre - commitment approach to setting capital requirements for bank trading activities. i might add that pre - commitment of capital is designed to work only for the trading account, not the banking book, and then only for strong, well - managed organizations. proponents of an internal - models - based approach to capital regulations may be on the right track, but at this moment of regulatory development it would seem that a full - fledged, bank - wide, internal - models approach could require a very substantial amount of time and effort to develop. in a paper given earlier today by federal reserve board economists david jones and john mingo, the authors enumerate their concerns over the reliability of the current generation of credit risk models. they go on to suggest, however, that these models may, over time, provide a basis for setting future regulatory capital requirements. even in the shorter term, they argue, elements of internal credit risk models may prove useful within the supervisory process. still other approaches are of course possible, including some combination of market - based and traditional, ratio - based approaches to prudential regulation. but regardless of what happens in this next stage, as i noted earlier, any new capital standard is itself likely to be superceded within a continuing process of evolving prudential regulations. just as manufacturing companies follow a product planning cycle, bank regulators can expect to begin working on still another generation of prudential policies even as proposed modifications to the current standard are being released for public comment. in looking ahead, supervisors should, at a minimum, be aware of the increasing sophistication with which banks are responding to the existing regulatory framework and should now begin active discussions on the necessary modifications. in anticipation of such discussions, i would like to conclude by focusing on what i believe should be several core principles underlying any proposed changes to our current system of prudential regulation and supervision. first, a reasonable principle for setting regulatory soundness standards is to act much as the market would if there were no safety net and all market participants were fully informed. for example, requiring all of our regulated financial institutions to maintain insolvency probabilities that are equivalent to a triple - a rating standard would be demonstrably too stringent, because there are very few such entities among unregulated financial institutions not subject to the safety net. that is, the markets are telling us that the value of the financial firm is not, in general, maximized at default probabilities reflected

) have fallen by around 120 basis points since june 2014, a large proportion of which can be attributed to the impact of our measures. moreover, the decline has been more marked in those countries that suffered more acutely from financial fragmentation during the crisis, showing that our measures have not only provided the necessary monetary accommodation, but also rehabilitated the transmission mechanism to ensure an even transmission of monetary policy throughout the euro area. loans to nfcs – sharply down when we introduced our unconventional measures – are growing again, and reached an annual growth rate of 2. 9 % in december 2017. taking these factors together, the overall impact of the ecb ’ s policy measures since mid - 2014 are estimated to have contributed significantly to output growth – and by around half a percentage point in 2017. while our measures have clearly played a decisive role in keeping inflation expectations anchored and have contributed to an improved inflation outlook, an ample degree of monetary accommodation remains necessary to secure a sustained return of inflation rates towards levels that are below but close to 2 %, as reaffirmed by the governing council at last week ’ s meeting. despite the strong cyclical momentum, domestic price pressures remain subdued, as do measures of underlying inflation. the evolution of the ecb ’ s forward guidance our monetary policy stance is determined by the combination and mutual interaction of our asset purchase programme, our policy rates and our forward guidance on each of these tools. the stimulus provided by these policy tools is complemented by the tltros, which will remain outstanding for the next three years. when our key policy rates reached exceptionally low levels, asset purchases became the main monetary policy instrument for calibrating our stance. this is why, since january 2015, when the app started, we have been signalling the traditionally tight connection between the ecb ’ s 2 / 5 bis central bankers'speeches monetary policy and our price stability objective by linking an assessment of the medium - term outlook for inflation to the size and duration of our net asset purchases. accordingly, when communicating about net purchases, we have expressed our intention to continue with our chosen pace of monthly purchases until we see “ a sustained adjustment in the path of inflation consistent with our inflation aim ”. this phrase describes the key contingency that has guided the course of our policy in the past few years and will continue to do so in the future. in addition, the pledge to re - invest the proceeds from the principal payments that accrue from the maturing securities in our portfolio should be