hikes come at times of lost growth momentum, and lingering inflationary pressures that are weighing on household and corporate income and their capacity for debt repayment, when debt levels are elevated. while household debt in the region, at about 28 % of gdp, remains below some of the vulnerability thresholds, a deep dive into more granular data points to a vigilance as the share of vulnerable households has increased. interest rate risk may be even more relevant for companies as they mostly borrow at a relatively short maturity and with floating interest rates. imf analysis4 shows that in emerging economies, the debt at risk ( debt of companies with interest coverage ratio < 4 ) has increased to 50 % for the large firms and 70 - 80 % for the smes. it is clear that insolvency risk is heightened, which is visible through the rising trend in bankruptcy declarations, which in the eu - cesee region rose by 21 %. this may in part reflect normalization from the low levels hit during the pandemic, but also the fact that companies face difficulties to withstand the consequences of the triple shock – high energy, labor and interest rate costs. this brings us to the second prerequisite for avoiding financial dominance, which is having effective macro - prudential and resolution tools. a bis paper5 that looks into 157 monetary tightening episodes finds that macro prudential policy tightening – whether ahead of or during a monetary tightening, helps to reduce the likelihood of financial stress, thus increasing the room for maneuver of central banks in the fight against inflation. did the regulators in the region follow this guidance? the answer is affirmative. we have witnessed continued enhancing of macro - prudential frameworks, including active use of countercyclical and systemic risk capital buffers, as well as borrower - based measures. although prevention is the main objective of macro - prudential tools, we also have to be equipped with adequate resolution instruments in case risks materialize and threaten financial stability. following the gfc, one of the key areas of the regulatory reforms was the resolution, with main objective of introducing bail - in 3 / 4 bis - central bankers'speeches instead of bailout concept, i. e., using private money ( senior debt issued by banks ) instead of public money to resolve banks. however, this presupposes that banks have such instruments in place or can provide them at capital markets, which seems challenging in economies with underdeveloped domestic markets. tapping

luc coene : challenges for euro area monetary policy going forward keynote speech by mr luc coene, governor of the national bank of belgium, at the 29th suerf colloquium, brussels, 10 may 2011. * * * ladies and gentlemen this week marks the first “ anniversary ” – if i may say so – of the sovereign debt crisis. indeed, the first week of may last year was characterised by extreme turmoil on financial markets and on the markets for public debt of some european countries in particular. that forced the eurosystem to announce a set of measures on monday 10th of may 2010, including a programme to intervene on markets for debt instruments. one year after that very turbulent period, i think it is a good time to take a look at what challenges are ahead of us. i will focus my remarks on monetary policy in the euro area, and in particular on the challenges posed by the current macroeconomic outlook and how the sovereign debt turmoil has an impact on euro area monetary policy decisions. let ’ s first go back to the early days of may 2010. what we witnessed those days, was a fullblown panic on financial markets after tensions on some government debt markets had been mounting since the fall of 2009 as investors increasingly cast doubts on the capacity of greece to repay its public debts. the turmoil in may not only led to very high spreads on greek paper, but also affected other countries ’ sovereign debt markets, led to extremely volatile equity and foreign exchange markets and brought about a new freeze in interbank trading as banks again became reluctant to lend each other in a context of uncertainties regarding exposure to the countries concerned. therefore, the governing council of the eurosystem decided on a package of measures. first, a programme to intervene on the secondary markets for private and public debt securities was set up in order to restore the smooth functioning of securities markets, a key link in the monetary transmission chain. second, it was decided to organise again all eurosystem liquidity providing operations as fixed - rate full allotment tenders, which allows banks to obtain all liquidity they need at a fixed rate, of course against the pledge of appropriate collateral. finally, banks could again obtain us dollar liquidity through a swap line with the us federal reserve. since these early may days one year ago, the economic outlook has improved, both on the global level and at the euro area level. yet, in my view, the economic environment is characterised by some divergences. i see