, such risks need to be addressed by policy instruments dedicated to ensuring resilience while curbing cyclical excesses – that is, supervision and macroprudential policy. in the current situation, we see that risks stemming from excessive risk - taking or any misaligned asset prices are contained in the euro area. this assessment is supported by continued moderate private sector credit expansion and leverage. however, we have certainly noticed that equity prices have continued to rise – albeit from previously low levels – and that sovereign bond yields are historically low. moreover, ecb estimates suggest that corporate bond risk premia are moving towards levels seen before the financial crisis. in addition, co - movements in financial markets have increased since summer 2014. these developments justify the need for close monitoring with a particular focus on asset markets but also on banks, insurers and pension funds as well as the less - regulated nonbank financial sector and the non - financial private sector. as financial and business cycles are not always aligned across countries and sectors in the euro area, area - wide monetary policy needs to be complemented by more targeted macroprudential policy. unlike monetary policy that influences the euro area across the board, macroprudential policy instruments can be applied in a granular manner, addressing risks at the country, sector and institutional level. macroprudential policy therefore provides the most appropriate instruments for mitigating financial stability risks, thereby supporting the price - stability oriented monetary policy. in that respect, concerns about the stability of the banking system have been addressed over recent years, through efforts to put a comprehensive regulatory framework in place and notably the set - up of banking supervision at the european level with the establishment of the single supervisory mechanism ( ssm ). the regulatory framework for banks is at this stage largely in place. but a few important elements such as leverage ratio, the net stable funding ratio ( nsfr ) and total loss absorbing capacity ( tlac ), which should be finalised in order to complete our framework for banks, are outstanding. in addition, macroprudential tools for the banking sector are also available but should be extended to also encompass ltv ( loanto - value ) and dti ratios ( debt - to - income ), the leverage ratio, limits to specific large exposures to shadow banks and to maturity transformation. given the achievements in the regulatory framework for banks and the changing landscape in the euro area financial system, our attention naturally shifts to the more opaque and less regulated parts

, the 10 largest had much riskier balance sheets at the start of the crisis. the much higher leverage and greater risk exposure of the 10 largest firms clearly indicates that they had a significant funding cost advantage over all other organizations, and their creditors believed they had less exposure to losses. this increase in financial sector leverage fueled a significant growth of debt in the non financial sector of the economy and, as it turned out, led to a general excess of credit growth over the past 10 years ( chart 5 ). bank lending rose from 39 percent of gross domestic product ( gdp ) in 2004 to 47 percent by the end of 2007, and that figure excludes the rapid growth in credit from the shadow banking sector and the gses, fannie mae and freddie mac. while bank loans relative to gdp have declined since 2008, it remains well above the long - term trend. the increase in leverage and debt was most prominent in the consumer sector. consumer debt as a percent of personal income generally has been rising since the 1950s ( chart 6 ). however, it began a rapid acceleration in 2000, rising from 76 percent to 110 percent by the end of 2007. non financial business borrowing relative to nominal gdp also has followed an upward trend since the 1950s ( chart 7 ). during this most recent expansion, it has increased from 77 percent in 2004 to 89 percent at the end of 2007. finally, and no less importantly, the federal government deficit is at record levels and the current trend is unsustainable ( chart 8 ). the increase over the past two years is due partly to the automatic stabilizers that come in to use during a recession and to additional fiscal actions taken to restart the economy. these temporary actions will add to an already heavy burden of various programs that have sharpened the upward trend with no obvious end in sight. effects given the levels of leverage in the economy, no one should have been surprised at the collapse triggered by the housing bubble bursting in 2006 and the rise in subprime mortgage defaults in 2007. when housing prices fell, many discovered that they had taken on more financial risk than they previously assumed and more than their capital levels could support. the institutions with the highest leverage suffered the most, and, as it turned out, these were some of the largest institutions in the world. financial panic quickly followed. what started as a wall street panic soon created regional distress and finally main street suffering. and just like the largest institutions, the regional and community banks that were most leveraged,