and restoring thereby the distributional neutrality of monetary policy. i will structure my remarks along three lines. first, i will describe the distributional consequences of monetary policy and the channels through which monetary policy can affect the distribution of income in normal times. second, i will consider the crisis period and the role of non - standard monetary policy measures. and finally, i will look at the role of other economic and financial policies. distributional consequences of monetary policy in normal times back in the 1960s, monetary policy in western european economies had explicit and legal redistributive functions. for example, central banks used credit control measures to complement more traditional instruments consisting of quantitative ceilings on lending rates or controls over the volume of bank lending to the private sector. direct control over credit was thought at that time to better stabilise economic cycles and inflation. yet credit controls were also used for other policy purposes, such as to finance government debt at lower interest rates than markets would allow, and to foster the allocation of credit to specific sectors considered as priority activities – in short, to pursue an industrial policy. central banks came to realise that credit controls were not the best way to fulfil their stability objective. what ’ s more, they came with undesired side effects. in particular, quantitative credit ceilings were negatively affecting competition, innovation and efficiency in the banking sector. 4 in some countries, the use of credit controls as one of the main instruments of policy led to a rapid expansion in the money supply, persistent inflation and frequent balance of payment crises. today, central banks conduct monetary policy by altering the short - term interest rate to affect inter - temporal decisions on consumption and savings. this inter - temporal – or vertical – redistribution is at the heart of the monetary policy, which aims at price stability. a change in the policy rate is transmitted to other interest rates at various maturities through a long sequence of inter - temporal arbitrages. ultimately, any change in interest rates for consumers and firms affects saving, investment and spending decisions through an inter - temporal substitution effect. monetary policy also affects the distribution of income on the intra - temporal – or horizontal – dimension. changes in short - term interest rates impact on consumption, savings and wealth in different ways, depending on the characteristics of individual households. but all these for a detailed account of these experiments with credit controls, see : d. r. hodgman, “ credit controls in western europe : an evaluative review ”, paper presented at

have made commercial banks less willing to make long - term loans, some large institutional investors – for example pension funds and insurance companies – need assets with maturities and returns that match their liability profiles. sme lending can provide this, especially while long - term safe assets exhibit low rates of return. the size of this “ shadow banking ” system – which in my view is a misleading term11 – has increased considerably in the euro area since the crisis, rising by almost 20 % since 2008. it has also taken on a greater role in financing the real economy. at end - 2013, outstanding amounts of loans from euro area non - bank financial intermediaries to euro area non - financial firms amounted to €1. 2 trillion. but the key challenge from a policy perspective is to ensure that these funds make their way to the most credit - starved smes. here i see two initiatives as particularly important. the first is to increase their capacity to lend directly to smes via loans or bond purchases. here improving the information available for non - bank investors is key. a possible solution, proposed in the recent report of a high level expert group12 on finance for growth in europe, is for european institutions to work with the private sector to establish a consolidated database on sme credit risk performance. actions are also possible at the level of member states. in italy, for example, “ mini bonds ” for smes are guaranteed by the italian state up to 70 % of principal, and the results are promising so far. the second initiative is to increase the capacity for non - bank investors to lend indirectly to smes via securitisation. this requires a concerted effort to revive the flagging market for high de kok, j. et al ( 2011 ), “ do smes create more and better jobs ”, eim business & policy research report, november 2011. adelino, m., song, m. and robinson, d. ( 2014 ), “ firm age, investment opportunities and job creation ”, nber working paper 19845, january. the financial stability board defines shadow banking as “ credit intermediation involving entities and activities outside the regular banking system ”, a definition which ranges from more transparent and regulated entities such as institutional investors and money market funds to highly complex and unregulated entities such as structured investment vehicles and special purpose entity conduits. “ finance for growth ”, report of the high level expert group on sme and infrastructure financing,