mario draghi : hearing at the committee on economic and monetary affairs of the european parliament introductory statement by mr mario draghi, president of the european central bank, for the hearing at the committee on economic and monetary affairs of the european parliament, brussels, 17 november 2014. * * * mr chairman, honourable members of the economic and monetary affairs committee, ladies and gentlemen, it is a pleasure for me to be back again in this committee for the last hearing of 2014. this year has once again been a year of profound change for the euro area and for the union as a whole. it was a year of legislative and institutional progress on many fronts, as 2014 saw the birth of banking union with the agreement of the single resolution mechanism, the start of the single supervisory mechanism and the successful conclusion of the comprehensive assessment of banks ’ balance sheets. and it was indeed a challenging year for monetary policy, which saw the ecb take a wide range of measures to respond to the risks emanating from an increasingly sobering economic outlook. you have chosen two topics for today ’ s hearing, the relationship of financial fragmentation and monetary policy as well as the eurosystem ’ s collateral framework. i will touch on both these issues, but let me first run you through our current assessment of the economic outlook. economic and monetary developments the euro area growth momentum has weakened over the summer months and most recent forecasts have been revised downwards. at the same time, our expectation for a moderate recovery in 2015 and 2016 remains in place. demand should be supported by a number of factors. among them are our monetary policy measures and progress made in fiscal consolidation and structural reforms in some countries. at the same time, high unemployment, sizeable unutilised capacity, and the still ongoing and necessary balance sheet adjustments are likely to dampen the recovery. risks to the economic outlook continue to be on the downside. in particular, the weakening in the euro area ’ s growth momentum, alongside heightened geopolitical risks, could dampen confidence and, in particular, private investment. in addition, insufficient progress in structural reforms in euro area countries constitutes a key downward risk to the economic outlook. inflation in the euro area remains very low. in october, it stood at 0. 4 %. we expect it to remain at around current low levels over the coming months, before increasing gradually during 2015 and 2016. looking forward, we closely monitor risks to price developments. the latest monetary data point to subdued underlying growth in broad

- scale and more localized regional and community banking organizations. while asset size is the principal determinant of the general supervisory program for a banking organization, other factors are taken into account as appropriate. for example, if a regional banking organization were to become involved in activities typically undertaken only by larger banking organizations, we might add to that firm ’ s supervision an expectation or practice drawn from the large banking organization portfolio. moreover, in determining which banking organizations belong in the liscc portfolio, the federal reserve has focused on the risks to the financial system posed by individual firms – size has not been the dispositive factor. for example, three large banking organizations are not in that portfolio, even though they have larger balance sheets than the processing - and custody - focused bank holding companies that are in the liscc portfolio. the stress or failure of these large, essentially regional banking organizations could have a serious effect on credit intermediation across a significant part of the country and, in some situations of generalized stress, might have consequences for the financial system as a whole. however, we judge that the functions of the two processing - and custody - focused liscc firms implicate systemic concerns to a greater extent than the substantial balance sheets of the larger regionals. the role of statutory thresholds as i hope by now is apparent, the federal reserve has done considerable work to tailor our supervision of banking organizations by reference to their size, business model, and systemic importance. similarly, using the statutory discretion granted us, and frequently in cooperation with other regulatory agencies, we have also tailored the application of certain statutory requirements to different groups of banks. the question of statutory thresholds is thus a fairly narrow one : does a threshold specify a cut - off point that is appropriate for mandatory application of a particular regulatory requirement, taking into account whatever discretion is given to the implementing regulatory agencies? in answering this question, it is first worth noting the case for establishing such statutory thresholds. in the past, congress has at times not simply given the banking agencies authority to engage in a particular form of prudential regulation, but has required that they do so. capital regulation and prompt correction action are two examples. not coincidentally, i think, congressional action followed banking crises that revealed possible shortcomings in the regulatory and supervisory structures that had existed preceding the crisis. in requiring certain kinds of prudential regulation, congress was in effect protecting against memories of those problems fading and the consequent possibility of supervisory relaxation