their life - cycle income. reforms that raise expectations of life - cycle income should immediately support current consumption. to give just one example of this effect, an extension of the retirement age should lift not only medium - term supply – by expanding the active population – but also short - term demand, by reducing the need for precautionary savings ahead of retirement. but credibility is crucial in determining how quickly these positive effects materialise. if there is uncertainty about the timeline over which reforms will be implemented, or about the commitment of successive governments to maintaining them, it will take longer for firms and households to adjust their expectations and the benefits of reforms will be delayed. 15 moreover, if reforms are not perceived to be sustainable under a wide variety of conditions moreover, if reforms are not perceived to be sustainable under a wide variety of conditions – for example, if a pension reform is unrealistic over the longer - term – agents will anticipate a reversal in the future and refrain from adjusting their behaviour today. – for example, if a pension reform is unrealistic over the longer - term – agents will anticipate a reversal in the future and refrain from adjusting their behaviour today. we have used our euro area and global economy ( eagle ) 16 model to analyse for a medium - sized euro area country the effect of credibility and timely implementation 17 – in this andrews, d., a. caldera sanchez, and a. johansson ( 2011 ), “ housing markets and structural policies in oecd countries. ” oecd working papers, no. 836, january 2011. gnocchi, s., a. lagerborg, and e. pappa ( 2014 ), “ do labor market institutions matter for business cycles? ”, journal of economic dynamics and control, vol. 51, february 2015. giavazzi, f., and m. mcmahon ( 2008 ), “ policy uncertainty and precautionary savings. ” nber working papers 13911, national bureau of economic research. gomes, s., p. jacquinot, and m. pisani ( 2010 ), “ the eagle. a model for policy analysis of macroeconomic interdependence in the euro area. ” ecb working paper series no. 1195, may 2010. under full credibility, firms anticipate the full amount of the implied long - run increase in output, which leads to an immediate increase in asset prices and, hence, firms ’

mario draghi : building on the achievements of post - crisis reforms speech by mr mario draghi, president of the european central bank and chair of the european systemic risk board, at the second annual conference of the esrb, frankfurt am main, 21 september 2017. * * * it is my pleasure to welcome you to the second annual conference of the european systemic risk board ( esrb ). the conference coincides with the tenth anniversary of the start of the global financial crisis in the summer of 2007. the crisis shook the european union to the core, and required substantial policy actions to stabilise the economy and the financial system. with a return to stability having been achieved, it is important that we take time to reflect on what we have learnt, what we have achieved over the past ten years, and where we need to do further work. the crisis taught us that individual banks and the banking system as a whole needed to be more resilient than they were pre - crisis. as a result, many reforms have been put in place in recent years. our banking regulation and supervision have become stricter. moreover, the european regulatory framework now places greater emphasis on identifying and addressing system - wide risks. this includes the establishment of the esrb and the creation of macroprudential instruments assigned to public authorities. a more resilient post - crisis banking sector in the banking sector, significant efforts have been made in recent years to increase resilience. in the euro area, for example, the average common equity tier 1 ratio of significant institutions rose from 7 % in 2008 to 13. 5 % by end - 2016. and banks are required to set up solid governance structures and prudent risk management practices. moreover, resilience is now tested more rigorously in a forward - looking manner. the eu - wide stress tests coordinated by the european banking authority ( eba ) have become an important tool for quantifying banks ’ capital needs, with a view to ensuring that they would be able to continue lending to creditworthy borrowers even during a severe recession. 1, 2 post - crisis prudential rules have also provided public authorities with macroprudential tools to address systemic risks in the banking sector. 3 and the understanding of how to calibrate and implement these tools has advanced. for example, all member states now have a countercyclical capital buffer framework that is fully operational. 4 four member states have announced a non - zero buffer rate for domestic exposure