seek public bridge financing. overall, i welcome the agreement as a step forward toward eliminating the negativefeedback loops between banks and sovereigns. financing of the real economy let me turn to the second issue. bis central bankers ’ speeches a key characteristic of the euro area economic recovery is the decline in loans to the private sector. this situation applies at both the euro - area and, in many cases, the individual - country levels. because the euro - area economy is bank - based, bank lending is especially significant for smes, which produce the bulk of goods and services. consequently, a credit contraction raises the question : can the recovery be sustained in the presence of negative loan growth? a number of actions and initiatives are addressing this issue. i will confine my remarks to two areas. the first concerns monetary policy. throughout the crisis, the ecb has put in place both conventional and unconventional policy measures with the objective of increasing confidence and restoring the smooth operation of the monetary transmission mechanism. the volume of credit would have contracted significantly more had it not been for the ample provision of liquidity to european banks by the eurosystem. the declining path for real interest rates, suggested by the fact that inflation expectations are anchored close to 2 % in combination with the ecb ’ s commitment to keep an accommodative monetary policy stance, will lead to a substantial increase of the demand for credit along the way. there is, however, still work to be done on the supply side of financial markets. this circumstance brings me to the second area that deserves attention, i. e. the need to restore confidence in the banking sector. confidence has been undermined by the perception that some banks have been holding assets of questionable quality on their balance sheets. the resulting credit and counterparty risk has contributed to a rise in funding costs, preventing some banks from on - lending to the private sector. supervisors, at both the european and individual country levels, are using tools – including stress tests, asset quality reviews and transparency exercises – to assess the resilience of banks and to request injections of capital, so that confidence in the quality of bank balance sheets can be restored. in this context, the establishment of the ssm and the comprehensive assessment taking place will provide a catalyst for the cleaning - up of balance sheets to take place more quickly and more comprehensively than would otherwise have been the case. the repair of banks ’ balance sheets is unavoidable and will, of necessity, involve

in its stages of implementation, how the institution assesses and manages risk, and relevant information for third parties to ascertain the effectiveness of the bank's risk 2 / 4 management. pillar 3 market discipline, therefore, will complement supervisory efforts to maintain adequate capital. so where do we go from here? the u. s. agencies learned some valuable information from the follow - up work pertaining to qis4 results this summer. right now we are still evaluating the results from this follow - up work, discussing the options to respond to those findings, and determining how the implementation process will proceed in the united states. obviously, we understand that the industry and others are interested in details about the next steps in the united states, and we hope to provide a public communication sometime in october. additionally, the agencies are moving forward on an advanced notice of proposed rulemaking for revisions to basel i rules, the details of which should be publicly available very soon. we expect that the timeframe to adopt revisions to current rules will overlap with the basel ii proposals, so that the industry can review them side - by - side. progress on home - host issues with such a large group of international bankers in attendance, i would be remiss in not offering a few thoughts on home - host issues relating to basel ii implementation. understandably, internationally active banks are keenly interested in cooperative arrangements among supervisors for evaluating capital adequacy under basel ii. several years ago, the accord implementation group ( aig ) was formed as a subcommittee of the basel committee for supervisors to discuss the tactical issues associated with cross - border supervision. most recently, and in cooperation with the representatives of the core principles liaison group ( non - group of ten supervisors ), a joint working group was established to consider enhancing guidelines for information sharing among home and host supervisors. this working group is looking to clarify the roles and responsibilities of home and host supervisors as well as supervisory expectations of banks with regard to communications between their head office and their foreign offices. the working group is also hoping to address communications between home and host supervisors about enterprise - wide risk models and their use in assessing capital adequacy in host jurisdictions, as well as mechanisms for supervisors to work together for consistency and to avoid duplication. obviously, whatever guidance is issued would be supplemented further as implementation plans and qualification processes become more fully developed. i do think it is also helpful to remember that a number of the home - host issues pertaining to basel ii are actually