a reaction function that is sufficiently forceful and equally effective in reacting to deviations in both directions. a price stability target defined in such a symmetric manner would help us recover much of the needed policy space and re - empower conventional monetary policy. let me conclude by saying that while a symmetric inflation target and an effective reaction function would help us in achieving our price stability mandate, it would of course be no panacea – it would be no stairway to heaven, but certainly more than only smoke on the water. in other words, it would be one key building block in a broader construct of the strategy review, in order to enable the ecb ’ s monetary policy to better support sustainable growth and job creation, and also help reach its inflation target in the coming years. i will end here and look forward to your questions. 1 on the pandemics ’ generally dampening effect on inflation see especially jorda, oscar – sanjay r. singh – alan m. taylor ( 2020 ) : longer - run economic consequences of pandemics, federal reserve bank of san francisco working paper 2020 – 09 : doi. org / 10. 24148 / wp2020 – 09. 2 maritta paloviita – markus haavio – pirkka jalasjoki – juha kilponen – ilona vanni : reading between the lines − using text analysis to estimate the loss function of the ecb. research discussion paper 12 / 2020, 6 july 2020, bank of finland : helda. helsinki. fi / bof / bitstream / handle / 123456789 / 17503 / bof _ dp _ 2012. pdf? sequence = 3 & isallowed = y. 3 christine lagarde, the monetary policy strategy review : some preliminary considerations. speech at the ‘ ecb and its watchers xxi ’ conference, frankfurt am main, 30 september 2020. 2 / 2 bis central bankers'speeches

. yet this mechanism hardly worked during the crisis in the euro area. even worse : depositors in crisis - hit countries lost confidence in their domestic banking systems and withdrew their deposits. banks in the euro area also lost confidence in each other and reined in their lending. the banking union was created in part to overcome the financial fragmentation triggered by the sovereign debt crisis. with its single supervisory mechanism and rules on bailing - in creditors in the event of bank failures, the banking union bolsters the banking sector ’ s resilience. this makes a loss of confidence in national banking systems less likely. and less danger of a fragmented financial system stabilises cross - border lending, particularly in turbulent times. a common european deposit guarantee scheme could, in theory, even heighten this confidence. however, as with any insurance policy, one would have to make sure in this case, too, that the insurance does not encourage imprudent behaviour. such risks can arise from carelessly granting credit to the private sector. but they can also result from providing sovereigns with too much credit. since the onset of the sovereign debt crisis, at the latest, we know that loans to general government are not risk - free either. banks in the euro area have a sizable share of sovereign bonds on their books. to insure euroarea bank risks in such a situation would be tantamount to insuring fiscal risks. given that the member states themselves still decide freely and independently on the level of government expenditure and taxes, this ultimately sets the wrong incentives : finance ministers would see less of a need to pay adequate attention to the sustainability of public finances. the precondition for a european deposit insurance scheme, then, is that the size of government bond portfolios that banks hold on their books is limited. loans to sovereigns should not be treated any differently from loans to enterprises or individuals. another precondition concerns the stock of non - performing loans in the european banking system. insurance usually covers future damage, not damage that already exists. hence, in order to be eligible for a common deposit insurance, banks in the euro area have to either fully provision for non - performing loans or divest them. non - performing loans not only constitute an obstacle to a common deposit insurance scheme. they also weigh on financing conditions and, ultimately, growth prospects in the member states concerned. banks need to clear up existing non - performing loans. and we need to establish rules that ensure the prudent management of