however, higher funding costs and less prudent fiscal policies could reignite concerns around sovereign debt sustainability, particularly in countries where debt levels are already high. the euro area banking system has been a source of resilience in this turbulent year. banks'capital and liquidity buffers remain strong, and profitability has further improved in recent quarters on the back of higher interest rates. despite these strong fundamentals, it is striking just how compressed bank valuations remain. this seems to reflect lingering concerns about the long - term sustainability of bank earnings, as they face increased downside risks from the prospect of deteriorating asset quality, lower lending volumes and higher funding costs. while asset quality indicators have been robust over the last year, early signs of deterioration are becoming visible a€ “ particularly in smaller firms and some sectors like commercial real estate. conclusion since the start of our hiking cycle, we have increased our policy rates by a cumulative 450 basis points. our restrictive policy stance continues to be transmitted forcefully into financing conditions and is increasingly affecting the real economy. inflation has come down markedly but is still expected to stay too high for too long, and domestic price pressures remain strong. we will therefore ensure that our policy rates will be set at sufficiently restrictive levels for as long as necessary. in view of the prevailing elevated uncertainty, our future decisions on policy rates will continue to be data dependent and taken on a meeting - by - meeting basis. at our december meeting, we will have a new set of macroeconomic projections and more 3 / 4 bis - central bankers'speeches data on actual and underlying inflation, economic activity and the state of transmission, so we will be in a better position to reassess the inflation outlook and required policy action. a resilient and well - functioning financial system is essential for the smooth transmission of monetary policy that is required to achieve our goal. to this end, macroprudential authorities should preserve releasable capital buffers to ensure that they are available in the event that conditions in the banking sector deteriorate. furthermore, the lessons learnt from the turmoil this spring underline the need to implement outstanding basel iii reforms and complete the banking union, while previous market shocks confirm the need to boost the resilience of the non - bank financial sector by strengthening the policy framework for non - banks in an internationally coordinated manner. prudent and investment - oriented fiscal policies are also very supportive of our price stability goal. fiscal policy should be geared towards making the euro area economy

resumption of net purchases, associated revisions to the framework of forward guidance would have to be considered in order to make sure that the different instruments continue to be tightly linked and that their synergies are maximised. tltros the governing council recently decided to start a third series of tltros ( tltro iii ) to help preserve favourable bank lending conditions and support the smooth transmission of monetary policy. the generous borrowing conditions offered to banks should not only provide a backstop to the banking system but also lower aggregate funding costs, which contributes to the overall accommodative monetary policy stance. the funding cost relief is direct for those banks that switch from more expensive options to 9 / 19 bis central bankers'speeches tltro financing. however, there is also an indirect channel that benefits the entire banking system : while looking ahead banks will have to step up their issuance in order to satisfy regulatory requirements, the tltro programme will help avoid cliff effects by allowing banks drawing tltro funds to cancel or postpone plans to issue bonds in the market. this reduction in the supply of securities relative to what we would see in the absence of tltro iii creates a scarcity channel that puts further downward pressure on bank bond yields, resulting in funding cost relief across the board. the upshot of cheaper bank funding is higher credit volumes and lower lending rates to the wider economy via the bank lending channel. 9 10 / 19 bis central bankers'speeches in fact, our experience with previous tltros ( tltro i and ii ) was that these operations had a significant effect on funding costs, particularly in more vulnerable euro area countries. moreover, the lower funding costs were passed through to customers. particularly in vulnerable countries, banks that participated in tltros cut their lending rates by more than their non - participating peers ( see chart 6 ). the policy package in assessing the impact of our policy package, we must also take into account that the instruments were designed to be complementary and mutually reinforcing. overall, the transmission of our suite of measures to the financial system has been very effective. this is in no small part due to the strong complementarities between instruments, which ensure that all segments of the yield curve are influenced, thereby easing financial conditions more broadly ( see chart 7 ). let me give two examples to illustrate the role played by complementarities in our policy design. first, the negative interest rate policy has supported the portfolio rebalancing channel