to adjust their business models to the environment. banks should not use monetary policy as an excuse not to make the necessary effort to change their business models and become more profitable. the central bank of central banks, the bank for international settlements ( bis ), also warns that central bankers are repeating the mistakes of the start of this century when loose monetary policy contributed to a credit and housing boom which then collapsed and gave rise to the financial crisis. 5 / 6 bis central bankers'speeches it ’ s the bis ’ s duty to issue warnings, and we take its advice seriously. today, we monitor risks in the financial system in much more detail than before the crisis, as shown for example by our biannual financial stability review. second, we now have new tools under european law – particularly macroprudential instruments. and third, banks are much less leveraged today, thanks to the new regulatory constraints. history teaches us that, always and everywhere, asset price bubbles were accompanied by high leverage. that is not the case now, because banks ’ balance sheets are smaller. that reduces the amount of risk in the financial system. where we need to be particularly vigilant is with regard to market - based finance, also known as shadow banking. we need to gather the right information and we may need new instruments to make sure that the next big crisis does not come from the shadow banking system. 6 / 6 bis central bankers'speeches

slight upward shift to the profile for hicp inflation in 2006, largely reflecting the assumption of higher oil prices. in the view of the governing council, risks to the outlook for price developments remain on the upside and include further increases in oil prices, a stronger pass - through of past oil price rises into consumer prices than currently anticipated, additional increases in administered prices and indirect taxes, and – more fundamentally – stronger than expected wage developments due to second - round effects of past oil price increases. turning to the monetary analysis, the governing council again had a thorough discussion of underlying developments in money and credit. in a context of already ample liquidity and very strong monetary and credit growth, the annual growth rate of loans to the private sector has increased further in recent months to reach double - digit levels. credit growth has also been broadly based across sectors. borrowing by households – especially for house purchase – and by non - financial corporations has been growing very strongly. at the same time, monetary growth has risen further over the past few months, with the annual growth rate of m3 standing at 8. 8 % in april. the rapid rate of monetary growth continues to be driven mainly by the expansion of its most liquid components. thus, the latest developments confirm that the stimulative impact of the low level of interest rates remains the dominant factor behind the current high trend rate of monetary expansion, which signals inflationary risks over the medium to longer term. the further acceleration of monetary and credit growth in this environment of already ample liquidity points to increased upside risks to price stability at longer horizons. monetary developments, therefore, require careful monitoring, in particular in the light of strong dynamics in housing markets. to sum up, annual inflation rates are projected to remain elevated in 2006 and 2007, with risks to this outlook on the upside. given the strength of monetary and credit growth and the ample liquidity situation, a cross - check of the outcome of the economic analysis with that of the monetary analysis confirms that upside risks to price stability over the medium term prevail. a further adjustment of interest rates was therefore warranted. by acting in a timely fashion, the governing council is helping to keep medium and long - term inflation expectations in line with price stability, thereby making an ongoing contribution to sustainable economic growth and job creation. overall, our monetary policy remains accommodative and the governing council will continue to monitor closely all developments to ensure that risks to price stability do not materialise. with regard to fiscal policies,