necessary. the importance of a resilient financial system let me now turn to our assessment of the financial sector. during my last appearance before this committee, we discussed the importance of maintaining a resilient financial system following the banking sector turmoil in the united states and switzerland. since then, the euro area financial system has remained strong, aided by declining inflation. confidence in euro area banks has benefited from strong rules and supervision. banks have maintained sizeable liquidity and capital buffers, and non - 2 / 4 bis - central bankers'speeches performing loan ratios remain close to historically low levels. at the same time, firms and households have shown resilience in the face of rising debt servicing costs resulting from higher interest rates. however, this positive outlook for financial stability in the euro area should not be taken for granted. it could face significant challenges if growth prospects weakened, inflation stayed above target for a longer period or further geopolitical risks materialised. we are also closely monitoring developments in euro area real estate markets as tighter financing costs, a move towards hybrid working practices as well as environmental, social and governance requirements are likely to continue to put pressure on this market segment. although mild signs of asset quality deterioration are becoming visible in commercial real estate ( cre ) lending, risks to this asset class are broadly contained given that banks'cre exposures, standing at around 5 % of total assets, are limited. our financial stability review, which is due to be published midmay, will provide more details of our assessment on this. to support continued financial sector resilience, legislators still have a lot of work to do in the coming years to close the gaps in our banking union. besides urgent reform of the bank crisis management and deposit insurance framework, we must set up a european framework for liquidity in resolution and, most importantly, a fully - fledged european deposit insurance scheme. we also need a solid institutional and policy framework for the non - bank financial sector and we welcome the european commission's forthcoming macroprudential framework review. moreover, during the next eu institutional cycle, the level of ambition and commitment devoted to the capital markets union ( cmu ) agenda must finally match the urgent need to make progress. completing cmu is key to strengthening resilience, enhancing eu competitiveness, growing our economy and achieving the eu's policy objectives, such as funding the green and digital transitions. in this spirit, the ecb governing council recently published a statement on advancing cm

followed the high risk and high return business strategy, with a skewed priority for serving only the interest of their investors. the active role of the board, especially in challenging the proposals of the management, thus becomes critical. this will contribute towards a more diligent and balanced approach to decision making. 21. fourth, another major challenge would be in dealing with the stressed borrowers impacted by covid - 19. during the two waves of covid - 19, the reserve bank announced resolution framework 1. 0 and 2. 0 to provide relief to the borrowers and banks. while the resolution in respect of large borrower accounts restructured under resolution framework 1. 0 was to be implemented by june 30, 2021, they have time till september 30, 2022 to achieve the operational parameters. on the other hand, resolutions invoked under resolution framework 2. 0 before 4 / 5 bis central bankers'speeches september 30, 2021 in respect of individuals, msmes and other small businesses, have to be implemented by december 31, 2021. as the support measures start unwinding, some of these restructured accounts might face solvency issues over the coming quarters. prudence would warrant proactive recognition of such non - viable firms for pragmatic resolution measures. 22. fifth, it may not be an overstatement to say that financial services industry today is in the midst of a ‘ technological invasion ’. the ongoing digitalisation of finance has led to positive disruptions on many fronts. needless to say, the reserve bank has been actively fostering innovation in this cross - fertilised space by envisaging mechanisms like regulatory sandbox for fintechs, co - lending models, account aggregators, etc. we would expect lending institutions to leverage upon these mechanisms to enhance the overall customer experience, product customisation, adoption of alternative credit appraisal methodologies, monitoring measures, among others. a word of caution is in order : globally, the ‘ phygital ’ revolution has played out into several collaborative models between banks, nbfcs and fintech players such as incubation, capital investment, co - creation, distribution and integration. while lenders are free to explore any of these models, the regulatory expectation is that the eventual tie - up decision should be as per their own commercial wisdom in terms of their internal policies subject to extant regulatory guardrails. they should also ensure that compliance requirements in terms of regulations such as the banking regulation act, the