of risk - weighted assets. a healthier banking sector that stands on a sounder foundation would also be very helpful – to say the least – in the context of setting up the single euro area supervisor. this leads me to the second aspect of my remarks tonight : the progress towards banking union. the progress towards banking union recently, the economist was speculating that europe might be “ turning away from its promised ‘ banking union ’ ” and contemplated “ banking disunion ”. banking sectors that act as regional financial hubs require vigilant supervision. this applies especially to cases were potentially “ hot ” capital flows on the liabilities side are financing a bis central bankers ’ speeches growing pool of domestic assets. it has to be ensured that undue investment risks are not taken on the basis of fickle capital. many commentators noted that if only banking union had already been in place, developments in cyprus could have gone different. i think they may have a point. after all, why are we establishing banking union? • first, it will break the vicious feedback between weak banks and weak sovereigns ; • second, it will help restore the proper transmission of monetary policy ; and • third, it will improve the incentives for proper supervision and limit the susceptibility to any prospective regulatory capture. in essence, banking union is a means to fully reap the benefits from european financial market integration, while at the same time containing the risks of financial contagion. currently, we can only talk about the banking union project – we do not have such a union yet. this is why, basically, the same questions are asked time and again, both in europe and over here : • where do we stand in the process? • and are we getting off course? let me share some thoughts on these issues with you. the rather benign market situation over recent weeks and months seemed to have lulled policy - makers in a false sense of complacency. some wonder whether the enthusiasm and ambition for banking union is waning. voices from some countries seem to suggest a backtracking on the idea of direct esm bank recapitalisation. on the single supervisory mechanism ( ssm ), agreement was reached between the european parliament, the council and the european commission in march. some technical details still need to be clarified. once that is achieved, i expect the ssm regulation to be formally adopted by the council and the european parliament, hopefully around the middle of the year. at the ecb

philip r lane : moving from 3. 75 to 3. 50 - explaining the latest rate decision keynote speech by mr philip r lane, member of the executive board of the european central bank, at the european investment bank chief economists'meeting, luxembourg, 16 september 2024. * * * slides accompanying the speech introduction my aim today is to cover two topics. first, i will briefly explain our decision last week to lower the deposit facility rate – the rate through which we steer the monetary policy stance – by 25 basis points. second, i will outline some considerations that will be covered by the 2025 assessment of our monetary policy strategy. the monetary policy decision based on our assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, our confidence in a timely return of inflation to target is supported by declining uncertainty around our projections, including their stability across projection rounds, and by inflation expectations across a range of indicators that remain aligned with a timely convergence to target. 1 the incoming data on wages and profits have been in line with expectations. the baseline scenario of the latest ecb staff projections foresees a demand - led economic recovery that boosts labour productivity, allowing firms to absorb the expected growth in labour costs without denting their profitability too much. this should buffer the cost pressures stemming from higher wages, dampening price increases. most measures of underlying inflation, including those with a high predictive content for future inflation, were stable at levels consistent with a return of inflation to target in a sufficiently timely manner. while domestic inflation is still kept elevated by pay rises, the projected slowdown in wage growth next year is expected to make a major contribution to the final phase of disinflation towards our target. financing conditions for firms and households remain restrictive, as our past policy rate increases continue to work their way through the transmission chain. credit growth remains sluggish amid weak demand. based on this assessment, it is now appropriate to take another step in moderating the degree of monetary policy restriction. the decision to lower the deposit facility rate ( dfr ) by 25 basis points is robust across a wide range of scenarios. at a still clearlyrestrictive level of 3. 5 per cent for the dfr, the realisation of upside shocks to inflation that would call into question the timely return of inflation to target could be addressed by a slower pace of rate reductions in the coming quarters compared with the baseline rate path that is embedded in the projections. at the