both sides will benefit from each other ’ s know - how. prior to the finalisation of the detailed rules of this supervisory model, a public consultation will be held this autumn. • fourth, a comprehensive assessment of the banks that will be directly supervised by the ecb. as this comprehensive assessment – which will involve a risk assessment, balance sheet assessment and a stress test – is currently attracting most attention, i would like to deal with it in more detail. for it makes clear that the banking union can only be a success if we take the correct approach from the out - set. for various reasons, two stress tests have not led to a restoration of confidence in the european banking sector. this will be our third and last chance. before launching the single supervisory mechanism, we should know the state of the banks that we will be supervising. we want to be free of old liabilities when we take on our new task. but it is also beneficial for the supervised banks themselves for us to have a clear picture of the health of each individual institution. bis central bankers ’ speeches by performing the comprehensive assessment we will provide transparency for investors – and that is exactly what is required to sustainably reinforce confidence in the banking sector. the average price / book ratio for large and complex banking groups in the euro area is currently just over 0. 5. this reflects the opinion of investors that banks overestimate the value of their assets, will not deliver the expected rate of return or will require fresh capital. moreover, confidence in the banking sector is much lower in some euro area countries than in others. that also causes fragmentation in the single market, as reflected in the difficulties some banks face in obtaining market funding. the results of our “ inventory ” are then incorporated in a stress test, which the european banking authority ( eba ) will perform in close cooperation with us. our staff members are now elaborating the methodical details of the comprehensive assessment. the final decisions will be made as soon as the legislation comes into effect and the decision - making supervisory board is in place. to enable the supervisory board to start operating promptly, the chair and vice - chair should be appointed as soon as possible after the final adoption of the legislation. we should now consider how to deal with any weak spots that are revealed during the assessment. funding for any capital shortfalls should preferably come from the market. but we also need a backstop in the event that some banks fail to raise the necessary capital. this is

that an entire decade ’ s worth of job growth was lost. household wealth declined sharply as well during the great recession due to losses both in equity and real - estate wealth. the household saving rate increased in reaction to this negative shock to household wealth ( chart 8 ). several factors were likely behind the higher saving rate. first, as already noted, households likely increased their saving rate to begin to rebuild their wealth. second, given the deterioration in the labor market, households would also have a strong “ precautionary demand ” for saving to help buffer their consumption in the event of a job loss. finally, homeowners might react to falling house prices by increasing their saving rate in order to rebuild the capacity to make a down payment on a future tradeup house. in more extreme cases where house price declines have put owners in a negative equity position where the value of the house is now less than the balance on the mortgage, homeowners may increase their saving rate to have the capacity to pay off their mortgage to avoid a costly foreclosure. at the same time that the real economy was contracting there was an on - going crisis in financial markets. the balance sheets of banks and securities firms were under severe strain and liquidity was drying up. a good barometer for problems in the financial sector is the price for credit default swap ( cds ) contracts for financial firms ( chart 9 ). these cds prices started to rise in 2007 as news of losses for subprime mortgages began to hit markets. there was a bis central bankers ’ speeches jump in cds prices in march 2008 when bear sterns was taken over by jpmorgan chase. for a brief period over the summer of 2008, cds prices retreated. this was more evident for securities firms and may reflect the opening of the primary dealer credit facility ( pdcf ) that allowed primary dealers to obtain liquidity from the federal reserve on a collateralized basis. following the bankruptcy of lehman brothers in september 2008, these cds prices increased dramatically. in response to the deterioration in the economy as well as to mounting loan losses, banks tightened their lending standards and credit spreads increased. this can be seen using data from the federal reserve ’ s senior loan officer opinion survey ( chart 10 ). values above zero represent tightening of standards, widening of spreads and weaker loan demand. all three were taking place as the economy entered the recession. a consequence was a sharp contraction of lending activity ( chart 11 ). to the extent that the decline