crisis, and with the policy response since march 2020 has helped to avoid the kind of harmful credit supply tightening that characterised the previous global financial crisis. a forward - looking assessment carried out and published at the end of 2020 indicates that banks currently have adequate capital headroom to withstand an adverse scenario without breaching capital requirements. 1 it will remain a policy priority of ours that the banking sector can support economic activity. in reflecting on what we have learned today, the most pertinent short - run issue facing us all relates to the survival prospects of businesses. up to now, the exceptional nature of policy support provided to the sector has meant that companies have in the main avoided insolvent liquidations. as things stand, for many smes, a normalisation of insolvency procedures at this point would lead to liquidation, given the sheer size of the shock they continue to grapple with. given the duration of closures due to public health restrictions, and the uncertainty levels that prevail around future demand in some sectors, it would seem that now is not the time to begin assessing companies ’ survival prospects based on pre - pandemic norms. the scale of potential closures would likely cause an unwarranted degree of damage to the labour market and the economy, including the risk of “ scarring ” which would hamper our economy over the long run. 1 / 2 bis central bankers'speeches this leads to a complex policy challenge that will require our focus throughout the rest of 2021 and beyond : firstly, over what timeframe, and subject to what economic conditions, should the government begin to taper its direct financial supports for businesses? second : at what point should the current system of creditor forbearance begin to adjust, and pre - pandemic insolvency criteria begin to apply? the continuation of unviable businesses indefinitely would lead to long - run economic damage through capital misallocation, a phenomenon sometimes referred to as “ zombie lending ”. similarly, the government must also take its fiscal sustainability into account as it plans for further direct support. however, given that the challenges facing the majority of businesses in financial distress currently relate to a pandemic outside of their control, rather than their own management decisions, as well as the progress with vaccination rollout which means that economic re - opening now feels close, the balance appears currently to weigh on the side of further protection and time for businesses to adjust and trade as conditions normalise. of

christine lagarde : hearing of the committee on economic and monetary affairs of the european parliament introductory statement ( via video conference ) by ms christine lagarde, president of the european central bank, at the hearing of the committee on economic and monetary affairs of the european parliament, frankfurt am main, 7 february 202 2. * * * accompanying charts : www. bis. org / review / r220210b _ charts. pdf on this day in 1992, the leaders of twelve european countries decided to transform the european community into the european union by signing the maastricht treaty. thirty years on, europe continues to benefit from many of the accomplishments of that treaty. the treaty established european citizenship, including the right to move and settle freely in the eu. it granted this parliament extended powers through its right of co - decision and strengthened europe ’ s voice in the world through a common defence and security policy. and, perhaps most importantly, the treaty laid the foundation for our economic and monetary union, leading to the introduction of the euro and the establishment of the ecb. as we are celebrating 20 years of euro banknotes and coins this year, there is no doubt that the single currency has been a success. it has brought stability and made us more resilient in the face of the multiple adverse shocks we have experienced. over the past 20 years, the ecb has ensured price stability, with an average inflation rate of 1. 7 per cent since early 1999. we are determined to continue doing so. in my remarks today, i will therefore first update you on the latest assessment of the economic situation in the euro area and present our monetary policy stance. i will do so with a firm determination that clear communication – the topic you have chosen for today ’ s hearing − is crucial for our policy, for our credibility and for the trust people have in us. already during my first hearing back in december 2019, 1 i outlined my aspiration to improve our communication practices so that markets, elected representatives like yourselves and the wider public better understand how we reach our decisions, what motivates them, and how they affect people ’ s daily lives. following on from our strategy review, we are now using clearer, more narrative - driven language, together with relatable visuals. as at the last hearing, i will thus explain the key macroeconomics developments discussed in this statement with the help of the charts in the accompanying twopage document. the euro area economy and monetary policy when