next steps it ’ s worth briefly reviewing those that were taken to overcome the crisis. the first part of the response – which was both global and european – entailed immediate crisisfighting measures. facing unprecedented turbulence in the financial sector, governments in the g20 signalled their commitment to working together and coordinating their financial and fiscal policies. and they provided substantial state support to stabilise the banking sector and protect deposits. central banks also played a key role in responding to the instability in the system, including by adopting numerous non - standard measures. the ecb started by providing the necessary shortterm liquidity in the form of fixed - rate full allotments, extending longer - term liquidity facilities, and 1 / 7 bis central bankers'speeches expanding its collateral framework to maintain the transmission of monetary policy throughout the euro area. it also launched an asset purchase programme to bring the economy onto a path of inflation leading back to price stability. crucially, the action of the central banks was based on the understanding that, without financial stability, central banks are devoid of the necessary basis to transmit monetary impulses to the real economy. the second crisis - fighting measure was a forceful regulatory response to enhance banks ’ resilience. this started with a reform of the existing international rules agreed in basel which, in particular, led banks to increase their levels of capital and liquidity. to limit the damage in the event of another crisis and contain the costs for sovereigns, we introduced resolution frameworks including bail - in tools. the banking recovery and resolution directive ( brrd ), in force since 2016, is a crucial regulatory change in europe that ends the culture of bailouts by the public sector, and introduces the culture of bail - ins. banks ’ capacity to absorb losses has been enhanced, with minimum requirement for own funds and eligible liabilities ( mrel ) being set at eu level, and total loss - absorbing capacity ( tlac ) for large banks being set at global level. these new rules aim to ensure that banks can fail and be resolved in an orderly fashion, and to shift the burden of crisis resolution from taxpayers to private creditors. the crisis also shattered the mistaken belief that an exclusive focus on price stability and the soundness of individual institutions would be sufficient to safeguard financial stability. that ’ s why we expanded the policy toolkit to include instruments designed to address any buildup of imbalances in certain parts of the system, leading to the birth of macroprudential policy

policies in an economic and monetary union in europe, collection of papers. committee for the study of economic and monetary union, luxembourg, 1989, january, p. 101. financial dominance is not a new concept. an early reference is fraga, a., i. goldfajn, and a. minella ( 2003 ), “ inflation targeting in emerging market economies ”, banco central do brasil working paper series, 76, section 4. 2. 2. bis central bankers ’ speeches to fill the gap. monetary policy has limited discretion here as it cannot independently judge the solvency of its counterparties – and remember, we have 2194. at the macro level, if supervisory policies allow banks to grow too rapidly, and then deleverage too slowly, it can also push the central bank into doing more. 6 since monetary transmission becomes impaired, the monetary “ impulse ” has to be strengthened compensate for the diminished “ outpulse ” coming out of banks. many of our non - standard measures during the crisis, such as our long - term refinancing operations ( ltros ), have essentially performed this function. moreover, weak micro - supervision and the resulting high level of non - performing loans can also trigger conflicts with other policy areas. for example, when bad banks or asset management companies are set up to deal with legacy asset problems, as happened for example in slovenia and spain, it is essential that the line between the duties of fiscal and monetary authorities is not blurred. central banking is about providing liquidity for solvent institutions, not about providing capital for insolvent ones. thus, the capitalisation of asset management companies in any country should preferably be shouldered by the private sector, and if this is not possible, by the fiscal authority. we have also seen in the euro area, however, that fiscal policies can face their own dominance problem related to financial policies. this stems less from supervision than from inadequate resolution frameworks. the key issue is that if national fiscal policies are expected both to stabilise the business cycle and to bail - out the banking sector, incurred and contingent liabilities become unsustainable in a banking crisis. in the euro area the total commitment to bank rescue packages amounted to 26 % of 2008 gdp. thus, fiscal policy can quickly become overburdened as well. and here again, a too weak financial framework can trigger conflicts in other areas. if fiscal policy is forced to contract when it is needed to smooth the cycle,