from monetary easing and interest rate declines. and a macroprudential policy would have provided awareness of the build - up of systemic risk. however, macroprudential policy was simply not part of the standard toolbox and the mostly procyclical fiscal policy that was followed contributed to rising imbalances in the economy in the early years of emu, making the subsequent adjustment more painful. let me say a few words on this. before 2008 – the accumulation of macroeconomic imbalances the significant degree of monetary easing in the run - up to emu provided a huge stimulus to domestic demand. as the “ new world ” of low interest rates and abundant financing seemed to offer a free lunch to the “ converging ” countries, several imbalances started to build - up in those countries, taking different shapes : • in countries such as portugal or greece, fiscal imbalances became a major problem – even if the size of the problem was substantially different. in both countries, savings arising from lower interest rates and boom - related windfall revenues were used to finance expansionary expenditure policies ; • in countries such as spain or ireland, fiscal policies were more prudent. still, imbalances built - up, mainly taking the form of a real estate bubble ; • in ireland, an oversized financial sector developed in tandem with the real estate bubble ( a similar phenomenon also occurred in non - euro eu countries, the most prominent case being iceland ). in portugal, from the mid - 1990s to 2007, the very substantial easing of liquidity constraints – arising both from the interest rate decline and access to a huge wholesale market for funding – led to booming private sector credit and a fall in households ’ savings rates. from 1995 to 2007, private sector debt almost doubled as a percentage of gdp ( averaging 187. 2 % of gdp during this period ), while households ’ savings rates almost halved. the increase in indebtedness was mainly used to finance consumption and low - return investments, mostly in the non - tradable sector. as a result, imports expanded and large current account deficits materialised, without a corresponding increase in the economy ’ s growth potential. from 1995 to 2007, the current and capital account moved from near balance to an 8. 6 % of gdp deficit. the public sector also benefited from lower interest rates and easier access to credit. in addition, booming private expenditure pushed up tax revenue. all else being equal, this should have meant substantially

need to reinforce the value of impairments by €861 million, around 2. 2 % of the overall amount of exposures assessed. in 2013, banco de portugal ran a new exercise focused on credit portfolio impairment assessment and on the fair value calculation of the participation units held in restructuring funds. it was directed to credit granted by banks to all segments, with the exception of mortgage and consumer credit ( which are assessed by collective impairment models ) and of credit to public sector entities. the credit portfolio assessed amounted to €93 billion, bis central bankers ’ speeches representing 23 % of total assets. as a result of the exercise, it was considered necessary a reinforcement of €1. 1 billion of the value of impairments, approximately 2. 1 % of the overall amount of exposures assessed. in all exercises, the valuation of the credit portfolio was performed by independent external auditing firms ( ernst & young audit & associados – sociedade de revisores oficiais de contas, s. a. and pricewaterhousecoopers & associados – sroc, lda ) without any relation with the inspected institution. moreover, a strict governance structure was defined to monitor the exercises. a steering committee was created, chaired by the banco de portugal and comprising experts appointed by the ec, ecb and imf, by three euro area supervisory authorities ( banco de espana, national bank of belgium, banque de france / acp ) and by banco de portugal. it goes without saying that all these exercises have been subject to close scrutiny by the troika. it is also worth mentioning that the asset quality review of european banks recently announced by the ecb will follow the same type of approach that we have followed in our horizontal inspections. other instruments worth mentioning include : • the adoption of a new, more stringent, non - performing loans ( npl ) ratio, based on international best practice. it is more comprehensive than the concept used previously, as it incorporates the possibility of debtors with payments in arrears continuing to fail to meet their credit commitments. it is in line with the npl definition used by the imf, reinforcing the comparability and transparency of information on credit quality. the new non - performing loans concept is more conservative than the european average ( collateral is not deducted from the npl ratio ). • the adoption of measures to discourage evergreening. in particular, banco de portugal required banks to earmark