levels recorded during the pandemic but has reached levels not seen in a decade ( slide 12, right - hand side ). the resilience of the euro area financial system can largely be attributed to the greatly improved prudential framework, reflecting concerted international action taken since the global financial crisis. the euro area banking sector displays strong liquidity and capital ratios, much higher than before the global financial crisis ( slide 13 ). risks from unrealised losses on marketable securities are likely to be moderate for euro area banks on average, as central bank reserves account for the largest part of liquid assets. however, there is no room for complacency as financial stability risks may be hidden below the surface of relatively calm financial markets and benign regulatory ratios. after all, the dramatic and unexpected shift in the macroeconomic environment affects all institutions conducting maturity transformation, albeit to different degrees depending on their business models. financial regulation may not always sufficiently capture such risks. one key example is interest rate risk in the banking book ( irrbb ), which has not been included under the pillar 1 capital requirements of the basel accord. in the current regulatory framework, it is up to supervisors to decide how interest rate risk is to be reflected in banks ’ capital requirements. in the euro area, there has been a strong focus on interest rate risks over recent years, including a dedicated stress test in 2017 and a thematic review last year. such analyses show that, in the short run, most euro area banks tend to benefit from higher interest rates, which boost banks ’ margins and net interest income due to the slow and partial pass - through of higher rates to depositors. the pass - through of higher rates to deposits, and hence the boost in net interest income, depends on the deposit structure. the pass - through tends to be larger for term deposits than for overnight deposits. moreover, firm deposits tend to be more responsive than household deposits ( slide 14, left - hand side ). the positive effect of higher interest rates on net interest income has been amplified by euro area banks'increased reliance on overnight deposits over recent years, generating a higher franchise value of deposits ( slide 14, right - hand side ). the changing interest rate environment is also reflected in banks ’ funding structure. both in the euro area and in the united states, overnight deposits declined over recent months. however, in the euro area, a larger share was shifted into term deposits, and the shortfall in deposits was largely compensated for by

patrick honohan : does credit matter for the sme? opening address by mr patrick honohan, governor of the central bank of ireland, to the central bank conference on the sme lending market, dublin, 2 march 2012. * * * access of smes to credit and other financial services is a perennial topic for policymakers, besieged – as they often are – by frustrated entrepreneurs who, whether wishing to expand or dodging closure, are unable to access the credit necessary to do so. the pat answer traditionally offered by market fundamentalists to the effect that, if creditworthy, the business would have secured financing from eager and shrewd financiers, wears thinner these days after we have seen the consequences of massive credit misallocation. indeed there are fundamental reasons why – even in the non - crisis environment – even well - run small and medium enterprises whose likelihood of creating loan losses are low nevertheless don ’ t get credit. information is the key. a key societal function of banks and other financiers is the gathering and processing of the information necessary to make good loan decisions and to continue monitoring the performance of borrowers, intervening promptly where necessary to protect the sums advanced. but gathering and processing that information is not cheap or easy, especially when the economy is changing gears and the external environment is uncertain, as it is now. does credit matter for the sme? a large body of empirical evidence internationally says “ yes ”, noting that access to finance can promote new firm entry, firm growth, innovation, the achievement of optimal firm size and risk reduction. furthermore, well - financed small firms contribute significantly to broader economic growth. admittedly, the much vaunted capacity of small firms to create employment is also matched by an above - average incidence of job destruction : much of the churn in any economy happens in small firms. it ’ s not a question, though, of whether big or small is best for growth ; both are key. but the effectiveness of a financial system in catering for firm needs is best evidenced by its capacity to serve small firms ; big firms can find their needs catered for even in poorly developed financial systems. it is, of course, possible to over - emphasize the importance of credit in the economy. not only have we seen how too much credit can have devastating effects when it is proved to have financed wasteful or pointless projects. and, on the other hand, a number of countries have experienced ( in recent decades ) post