time of the turmoil ’ s outbreak ( and still is ) underestimated banks ’ exposures by not capturing the bulk of the risks related to off - balance - sheet vehicles as well as liquidity and reputational risks. supervisors and regulators should also have paid more attention to the challenge of regulatory arbitrage. in fact, some financial innovation processes were triggered – among other considerations – in order to circumvent the existing regulation, particularly on capital requirements. this aspect is even more pressing in the current environment, with large and complex financial institutions operating across borders, under different national regulatory and supervisory regimes. as i will mention below, an improved and closer cooperation and information sharing among central banks, regulators and supervisors at both national and international levels seems, therefore, essential. to sum up, we have seen that the causes of the current crisis can be traced back to macroeconomic imbalances and, at the micro level, to incentive problems and that regulatory and supervisory deficiencies have also played a role. nonetheless, the crisis has once again shown the importance of system - wide externalities in propagating and exacerbating the crisis. problems of individual banks may have wide and serious implications for both the financial system itself and the economy as a whole. overall, banks must ultimately respond to losses on risky assets by raising new capital. new equity, however, may be difficult to be issued in sufficient amount in the short run. as a consequence, banks ’ first responses have been both asset “ fire sales ” and the scaling back of their lending activity. these two effects affect the banking system widely. widespread liquidation of assets in the current market conditions pushes prices down. through mark - to - market accounting, declining asset prices lead to unwarranted contagion to other banks with similar assets. those banks may be forced to adjust their positions by selling assets themselves, thus leading to further asset price declines. similarly, when deciding to cut lending, banks may not internalise the repercussions of their decisions on the real economy in terms of foregone profitable investment opportunities, output and employment. 2. policy responses let me now turn to the public policy responses to the crisis, with a special emphasis on the common elements of the responses of the major players in the global economy. liquidity policies central banks have established the first line of policy defence against the adverse dynamics set in motion by the financial crisis, particularly through the massive provision of liquidity. although the specific responses have varied

##kel and macron have suggested? germany and france have put forward interesting ideas in this respect. if properly designed ( that is, if it complements sound national fiscal policies ), a common euro area budget could help to dampen the impact of large economic downturns and make the economy less dependent on the ecb ’ s monetary policy. but it cannot and should not be the only way to make the euro area stronger. what needs to happen first? first of all, we need responsible fiscal policies and economic reform in all member states. many euro area countries still don ’ t have the fiscal space to support their economies in the event of a crisis, and their economies are not well prepared to long term challenges. so in my view, reform at the national level is the first line of defence. second, we need to complete the banking union and the capital market union to strengthen our single market and better fund innovation and growth. a common fiscal capacity is a useful complement, but it only comes third. what is still missing from banking union is a shared deposit insurance scheme. but this is a controversial topic in germany. savers are afraid that germany could at some point end up being liable for the collapse of, say, an italian bank. what would you say to that? a european deposit guarantee scheme is not about paying for other countries. it does not mean permanent transfers and it does not mean new taxes. a european scheme would increase confidence in banks and help them to operate on a pan - european basis, supporting the single market and hence growth and jobs. at the same time, it is of course important to keep reducing risks in european banks, in particular when it comes to non - performing loans. savers need to be patient. the ecb has decided that it won ’ t raise interest rates before the summer of 2019. why can ’ t it happen sooner? the euro area economy is growing and unemployment has fallen significantly. price pressures are gradually picking up. but this doesn ’ t happen in one day. ample monetary stimulus will remain needed to support a sustained convergence of euro area inflation towards our aim of 2 / 3 bis central bankers'speeches below, but close to 2 %. in other words : monetary normalisation has started, but it is a gradual one. we expect interest rates to stay at the current level at least through the summer of 2019. but we have already started to reduce our net asset purchases and anticipate to end them after the end of december.