npl ratio in 2016 stood at roughly 1. 5 per cent on average. so the fundamental problem – the very heterogeneous distribution of npls across eu member countries – remains unsolved. therefore, we need to make further progress on this front before we can establish a european deposit insurance system. and our efforts need to go beyond preventing risks from building up in the future. we also have to cleanse balance sheets of existing stocks of npls. so far, the european central bank and the european commission have both only presented measures 3 / 4 bis central bankers'speeches aimed at improving risk provisioning for future npl flows. high and heterogeneous levels of npls are one key impediment to taking further steps towards a common deposit insurance scheme. another stumbling block is related to sovereign exposures on banks ’ balance sheets. due to regulatory privileges, sovereign exposures are not – or only thinly – backed by regulatory capital. furthermore, unlike other asset classes, there is no limit to the volume of sovereign bonds a bank can hold from its home country. this has forged a close link between the solvency of countries and the solvency of their domestic banking sectors. and this link is even closer today than it was before the financial crisis in 2008. regulatory reforms introduced since the crisis have focused on one side of this contagion channel : measures were introduced to reduce the risk that distress in the banking sector will spread to the public sector. contagion in the other direction – from sovereigns to banks – has not been addressed so far. as long as this remains the case, a european deposit insurance system should not be established, since it would indirectly insure sovereign default risks. it is thus all the more important to move forward at the european level and kick - start a paradigm shift to end the regulatory privilege that sovereign exposures enjoy there. the sooner we get this done, the sooner we can take the next step towards a common deposit insurance system in europe. but to reiterate once more : risk reduction needs to come first if we want to take the steps in the right order. we should not forget that we already have a system of national deposit insurance schemes in the eu which guarantees deposits up to 100, 000 euro. so there is no reason to take hasty decisions now that we might regret in the future. i have named four areas that we need to address : npls, sovereign exposures, insolvency regimes, and resolution

restraint to be realized, especially on inflation. the economy is also facing headwinds from tighter credit conditions for households and businesses, which are likely to weigh on economic activity, hiring, and inflation. tighter credit conditions are a natural result of tighter monetary policy. but the bank stresses that emerged in march may well lead to a further tightening in credit conditions. the extent of these effects remains uncertain. at our last meeting, the federal open market committee ( fomc ) decided to maintain the target range for the federal funds rate at 5 to 5 - 1 / 4 percent while continuing the 1 / 4 bis - central bankers'speeches process of significantly reducing our securities holdings. we made this decision in light of the distance we have come in tightening policy, the uncertain lags in monetary policy, and the potential headwinds from credit tightening. as noted in the fomc's summary of economic projections, a strong majority of committee participants expect that it will be appropriate to raise interest rates two or more times by the end of the year. 1 when bank stress emerged in march, we acted in concert with other government agencies to address it, enabling the federal deposit insurance corporation to resolve two failed banks in a manner that protected all depositors. we also used our liquidity tools to make funding available to banks that might need it. in addition to our discount window, we established a new facility under our emergency lending authorities, the bank term funding program. our provision of liquidity through these tools supported the stability of the financial system without restricting the use of our monetary policy tools to firm the stance of policy as part of our efforts to reduce inflation. the banking system remains sound and resilient, deposit flows have stabilized, and strains have eased. evolution of the system since the great recession a little more than a decade ago, the global financial crisis required extraordinary interventions by governments around the world. stabilizing the u. s. financial system required coordinated efforts by all parts of the government, including $ 700 billion in taxpayer funds to recapitalize banks, a suite of fed emergency liquidity facilities, as well as government guarantees on bank transaction accounts and money market mutual funds. despite these efforts, the great recession brought misery to countless millions. as the crisis slowly receded, authorities in the u. s. and around the world implemented a host of reforms. the goal was to build a system that could withstand severe shocks, including unanticipated ones that might arrive from any direction