, the fdic has resolved over 500, mostly smaller banks in the united states. while determining the exact definition is tricky in the euro area, the number appears less than a hundred. 1 all this explains why the recovery of the banking sector took longer in the euro area, which our monetary policy had to work to mitigate. and what is more, when public authorities in the euro area did intervene to backstop their national banking sectors, the fiscal implications naturally differed : the onus fell entirely on national budgets. this in turn contributed to the second area where the euro area and the us diverged : the emergence of the so - called “ vicious loop ” between banks and sovereigns, which further delayed the financial repair process. importantly, this vicious loop not only further impaired monetary transmission, but it also had implications for the stance of monetary policy. the need for accelerated fiscal consolidation to quell the sovereign debt crisis constrained the ability of fiscal to carry out macroeconomic stabilisation in the euro area and hence the overall policy - mix. whereas the us could consolidate its budget against the backdrop of a firming recovery, some euro area governments were forced into a pro - cyclical fiscal stance. that in turn worsened the macroeconomic environment in which monetary policy had to operate. institutions are again central to explaining the difference. while the us operates in a consolidated union – with a federal treasury acting as the counterpart of the central bank – the euro area comprises 19 sovereign governments with separate national budget constraints, making sovereigns more vulnerable to a loss of market confidence. this is particularly valid amid a nobail - out clause for member states without any debt - restructuring mechanism below the federal level. accordingly, national fiscal policies have to be sound ex ante to build fiscal buffers, as is the case for states in the us. yet fiscal rules were only weakly enforced before the crisis, permitting public debt levels at the national level that were too high for a monetary union that is not complemented by a fiscal union. that said, even countries with low starting debt levels – such as ireland and spain – ended up embroiled in the bank - sovereign loop, showing that the institutional framework was incomplete in other ways, too. in terms of sovereign risk, there was no fiscal backstop of sufficient capacity for sovereigns until the european stability mechanism was established in late 2011, leaving the euro area vulnerable to contagion. likewise, there remains no mechanism for sovereign debt restructuring. and in terms of bank risk

funding and the rapid credit expansion took place against very limited equity capital in the corporate sector. the global financial crisis exposed these balance sheet vulnerabilities. the onset of the crisis caused a sudden stop in external financing, and countries in the region were caught in a vicious cycle of reduced credit availability, deleveraging, rising non - performing loans, and a cutback in corporate investment and output. much of the region is still suffering from the fallout of the global crisis. in a large number of countries, economic recovery remains feeble and bank credit is still contracting. for these set of countries, reviving credit growth is considered essential to achieving a strong and durable output expansion. however, the task is complex. boosting credit growth without addressing the large sectoral and aggregate imbalances in the economy that had built up during the credit boom years can be risky. matters may become worse if additional credit availability enables enterprises to postpone balance sheet adjustment. in the wake of a balance sheet recession, the allocation of credit matters more bis central bankers ’ speeches than its aggregate amount. it is important that good borrowers rather than the bad ones are the main beneficiaries of credit growth. it is not surprising that much of the cesee region is experiencing a slow so - called credit - less recovery. balance sheet recessions are typically not very responsive to traditional demand management measures. this is because the monetary policy transmission channel is impaired by the weak balance sheets of banks and the corporate sector. as long as asset quality is poor and capital is inadequate, banks will tend to restrict overall credit supply. liquidity may not be a binding constraint in such a situation. as has been argued by some analysts in the context of an unexpectedly low take up in the recent first auction of liquidity under the ecb ’ s tltro programme, the profitability of borrowing very cheaply for the central bank to lend to the private sector ( especially smes ) is not guaranteed if nonperforming loans are high and banks would need to discount high expected default rates and if lending to smes implies high risk weights and, consequently, capital charge. credit demand also is weak in a balance sheet recession. bank lending surveys in the region indicate that credit demand has decreased since the onset of the global crisis. an important factor weighing down credit demand is the corporate debt overhang. the easing of monetary conditions will not necessarily induce higher borrowing while highly indebted companies are focused on deleveraging. thus,