, the overnight rate. the ecb, like most other modern central banks, conducts monetary policy with mandatory remunerated reserves and a corridor around the policy rate defined by two standing facilities. this means that the signal of one particular policy rate can coexist with different levels of bank reserves – so long as our “ liquidity management operations ” ensure that the liquidity provided is neither excessive nor insufficient in relation to the demand by profit maximising banks that react to the opportunity cost of reserves. what matters for managing liquidity is the targeted policy rate and the amount of liquidity that is necessary to achieve it. in our case, we keep the banking sector in a liquidity deficit and supply liquidity via lending to the banks through a system of auctions. other central banks supply liquidity mostly through outright purchases of securities, normally short - term government paper. both models of liquidity provision have changed during the crisis. in the case of the us, the federal reserve started to buy longer maturities and some private paper. in our case, in october 2008 we abandoned the system of auctions with variable rates and entered a mode of fixed rate, full allotment – supplying as much liquidity as banks ’ demanded, provided they had eligible collateral to pledge. on top of this, in december 2011 and february 2012, we launched extraordinary operations with 3 - year maturities that totalled 1 trillion euro. the net increase in our monetary base was around 500 billion euro as banks reduced their use of shorter maturity facilities. our particular method of supplying primary liquidity makes the future absorption of liquidity in excess of the minimum reserve requirements easy to achieve. banks have to repay what they have borrowed when maturity is reached. in reality, as their situation has improved, they are anticipating the repayment of the ltros. they have repaid 362 billion euro ( or 64 % of the net increase of 500 billion euro ) and excess liquidity, which reached a peak of 813 billion euro in march 2012, has now fallen to 218 billion euro. we have been exiting quietly and smoothly from an extraordinary phase of high central bank liquidity provision. however, this new mode of conducting monetary policy also presents challenges. as the overnight market rate is determined by the volume of excess liquidity and the size of the corridor between the policy rate and the deposit facility rate, it is more difficult to influence its level – and correspondingly, to influence other short term money market rates. for instance, if excess

of bank business models, cost inefficiencies, overcapacity and still - large stocks of npls for parts of the euro area banking sector. first and foremost, it is up to the banks themselves to undertake the needed adjustment. but an effective reduction of npls will require action from all stakeholders, and will need to include legal and institutional reforms. in particular, active policies are needed to improve the efficiency of judicial systems, increase access to collateral, introduce swift out - of - court procedures and create liquid markets for distressed debt. last month the ecb published its final guidance to banks on npls. furthermore, it is crucial to complete the global regulatory reform agenda as soon as possible in order to significantly strengthen the regulatory framework for banks and ensure a period of regulatory stability and certainty for market participants. while the economic recovery in the euro area is firming, the reform process needs to be reinvigorated to transform the cyclical pick - up into stronger and persistent long - term growth. to that end, structural reforms have to be implemented much more decisively, including reforms addressing key institutional weaknesses and improving private debt workout mechanisms which are necessary to improve the investment environment. in many cases, these reforms entail fairly low short - term economic cost. given that national reform efforts remain limited in euro area countries, it is also important to foster the use of existing tools, most notably a full and consistent application of the eu ’ s macroeconomic imbalance procedure. likewise, full and consistent implementation of the stability and growth pact remains crucial to ensure confidence in the eu ’ s fiscal framework and to safeguard public debt sustainability. in the current environment of a firming economic recovery, a broadly neutral euro area fiscal stance strikes an appropriate balance between aggregate stabilisation and sustainability needs. however, the contribution of individual member states to the area - wide stance is sub - optimal. some member states need to take additional measures to ensure compliance with the fiscal rules while others have scope to use available fiscal space. all euro area countries should strive for a more growth - friendly composition of fiscal policies. more broadly, a stronger and more complete economic and monetary union ( emu ) is essential to ensuring the future resilience of the euro area economy. the european commission started a general reflection on the future of the eu by publishing a white paper last month, which will be followed by a paper on emu in may 2017. we need to make progress on completing the banking union by moving forwards in