that external shocks, like the ones we are experiencing today, might take time to fully materialise. we learned this from the two oil crises in the 1970s. the oil shocks in 1973 and 1979 led to an increase in banking provisions that only peaked in 1983. and those provisions were even higher than the provisions during the great financial crisis. 2 / 4 bis - central bankers'speeches so when and how the current inflationary shocks will have fully rippled through our economy is highly unpredictable. this will also depend on the fiscal and monetary policy response, and whether or not the geopolitical situation deteriorates further. so now that we find ourselves beyond our models'perimeter and without a straightforward scenario at hand, how do we go forward? what can guide our decisions? i suggest three " lines of defence " : first, in order to enhance banks'resilience, the implementation of basel iii in europe should continue without delay and with as little deviation as possible. one of the cornerstones of the basel iii reform is the introduction of the output floor, which is designed to reduce model risk. in this specific case, model risk is the risk that a bank's internal models incorrectly estimate the bank's capital requirements. for banks, the output floor will put a limit on the reliance on stochastic scenarios and increase their resilience. on this matter, i fully support the strong plea from the ecb and the eba to faithfully implement basel iii. 2 second, for banks to be able to determine their course of action and assess and mitigate risks, they need a thorough understanding of their exposures and of how the current challenges might impact their portfolios and financial positions. this starts with good data of high quality and extensive insight into their customers'financial positions – not only at the start of a contract, but also throughout. that is why we put pressure on banks to improve their data quality, and to properly aggregate and report on their data. third, whatever scenario banks eventually follow, it is crucial to maintain a healthy capital position. as i briefly illustrated with the oil crises, many of the risks of the current circumstances may only materialise down the road. the economic and financial situation in which banks took on risks on their balance sheets in the past years has fundamentally and abruptly changed. this makes it very unlikely that the scenarios used then still align with the world of today. this is why we are asking banks to be prudent with dividend payouts and share

further reforms could be significant. according to the oecd and the commission, they could raise potential gdp by up to 6 % on average. another priority is a further reduction of public debt, which now stands at 96 % of bis central bankers ’ speeches gdp in the euro area as a whole. countries should strive to return below the 60 % threshold of the maastricht treaty. this will probably take many years for most countries, but will significantly improve the stability of emu. for the european level, many elements needed to repair the design flaws in the monetary union are now in place. but the effectiveness of these new governance measures depends crucially on their application in practice. a strict implementation is absolutely necessary. this not only holds for the stability and growth pact and the macroeconomic imbalances procedure, but also for macro prudential policies and the asset quality review of bank balance sheets. should any problems in the application arise, european policymakers will need to continue to forcefully tackle them. this enables us to keep the monetary union stable also in the long run. bis central bankers ’ speeches