of the market. this led to a further build - up of liquidity risks. second, understanding the mechanisms through which leverage builds up and the impact of the unwinding of such leverage is essential. before the outbreak of the turmoil, leverage had built up both through traditional channels such as repos and through non - traditional channels such as off - balance sheet vehicles and structured credit products. much of the leverage was parked outside traditional financial institutions and also embedded in complex products held worldwide by various investors. as a result, no one could confidently estimate the overall leverage in the financial system, and thus the depth and breadth of its negative impact, once the cycle went into reverse. third, assessing the effectiveness of diversification and hedging strategies are important. market participants need to understand that some risks cannot be truly diversified or hedged away. for example, mortgage backed securities cannot avoid the risks of a macro shock such as a nationwide drop in residential house prices. hedging often involves taking on counterparty and basis risks. aaa – rated counterparties are not risk free. hedging strategies tend to lose their effectiveness during times of extreme stress. the risks which seem to have been neutralized under normal market conditions, would reemerge once the conditions sustaining the benign market environment collapsed. the causes of the global financial crisis are multifaceted and there are many lessons to be learned and improvements to be made. if i may repeat what has already been raised by many, the lessons are : market participants must improve risk management ; disclosure and transparency must be enhanced to improve the effectiveness of market discipline ; authorities must revamp prudential rules and strengthen supervision ; and cross - border cooperation among authorities must be further strengthened. recognizing the importance of all of this, from a central banker ’ s perspective, let me offer two perspectives which i believe are essential in reshaping the global financial system. assessing risks on a system - wide basis the first perspective is the assessment of risks on a system - wide basis. as a starting point, it is imperative that overall risks in the financial system are assessed on a macro basis. risks in the financial system and ultimately in the economy as a whole are not simple sums of the risks held by individual financial institutions. during the build - up of the excesses, senior management of financial institutions did not sufficiently take into consideration, interlinkages among financial markets and the interactions between the real economy and financial markets. authorities tended to concentrate on regulation and supervision at an individual

of next year, dampening annual inflation. our baseline scenario foresees inflation gradually increasing thereafter, but remaining below our 2 % target over the medium term. inflation could prove weaker than foreseen if a renewed tightening of pandemic - related restrictions were to affect economic activity. on the other hand, price pressures could become more persistent if supply bottlenecks last longer or wages rise more than is currently anticipated. so far, there is no evidence of significant second - round effects through wages and inflation expectations in the euro area remain anchored, but we continue to monitor risks to the inflation outlook carefully. monetary policy the ecb ’ s governing council concluded its review of our monetary policy strategy in july. as part of the review, a symmetric 2 % inflation target over the medium term was adopted. our new strategy also recognises the importance of taking into account the effective lower bound on nominal interest rates, which can require especially forceful or persistent monetary policy 1 / 4 bis central bankers'speeches measures. in support of this inflation target and in line with our monetary policy strategy, the governing council revised its forward guidance on the key ecb interest rates. we expect them to remain at their present or lower levels until we see inflation reaching 2 % well ahead of the end of our projection horizon and durably for the rest of the projection horizon, and we judge that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at 2 % over the medium term. preserving favourable financing conditions over the pandemic period is essential to reduce uncertainty and bolster confidence, thereby underpinning economic activity and safeguarding medium - term price stability. the governing council regularly recalibrates the net purchases under the pandemic emergency purchase programme ( pepp ) based on a joint assessment of financing conditions and the inflation outlook. at its meeting in september, the governing council assessed that the prevailing level of financing conditions, in conjunction with the slight improvement in the medium - term inflation outlook, allow favourable financing conditions to be maintained with a moderately lower pace of net asset purchases under the pepp than in the second and third quarters of this year. the governing council also confirmed in september its other measures, namely the level of the key ecb interest rates, the forward guidance on their likely future evolution, the purchases under the asset purchase programme, the reinvestment policies and the longer - term refinancing operations. it stands ready to adjust all of its instruments, as appropriate, to ensure