that impact on institutions ’ viability including, but not restricted to, those factors which cannot be captured by automated ratings. this relates not only to traditionally qualitative elements, such as internal governance and risk controls, but also to the assessment of institutions ’ risk levels. this institution - specific qualitative assessment uses up most of the supervisory resources in the srep. if this were not done, too many aspects that are key for the viability of institutions could not be factored in. think, for example, of very “ soft ”, yet extremely important things, such as the risk culture and the general spirit of the institution. furthermore, we do not just conduct quantitative and qualitative assessments separately. we work hard to combine both approaches in our methodology by bringing together the strengths of both concepts. let me explain briefly the structure of this srep methodology. the slide shows that it consists of four main elements : 1. business model assessment, 2. internal governance and risk management, 3. risks to capital, and 4. risks to liquidity and funding. all four elements are assessed and rated. they feed into the overall srep assessment that forms the basis for srep decisions. of these four srep elements, only the internal governance assessment is purely qualitative, while all other elements are assessed as a combination of quantitative anchor points and qualitative assessments, based on supervisory judgement. in order to ensure consistency in the assessments while allowing the responsible supervisor to tailor those assessments to institutions ’ idiosyncrasies, we follow a so - called “ constrained judgement ” approach that limits the extent to which judgement can push qualitative results towards a predefined range around the anchor points. one example of the combination of quantitative and qualitative supervision is our pillar 2 addon quantification methodology. although at first glance a purely quantitative concept, qualitative elements play a key role in this methodology. under the so - called “ block 1 ” of element 3, we assess risk levels and risk controls for credit, market, operational risk and interest rate risk in the banking book. the respective risk controls are assessed in a purely qualitative manner, and then combined with risk - level assessments that consist of a combination of quantitative anchor points and a holistic, judgement - based assessment. in addition, we factor in, under blocks 2 and 3, the banks ’ internal capital adequacy assessment process ( icaap ) figures, including internal stress

, may continue to collapse, hurting all open economies dependent on exports. the second are the negative effects that we are already witnessing in emerging market economies ( emes ). in fact, significant capital outflows and exchange rate depreciations already underway can hinder future growth. protectionist measures directed particularly against large emerging economies may further decelerate world economic growth and create instability in foreign exchange markets. the third factor concerns europe. in this first wave, europe apparently benefited from positive contagion with some increase in equity prices and a steepening of the yield curve, favouring financial institutions. as concerns equities, the low starting point seems favourable for european markets. share price levels are relatively subdued in europe with, for instance, a cyclically adjusted price earnings ( cape ) shiller index of just 14 against 27 in the u. s. this means that european shares, including those of banks, are undervalued with respect to other parts of the world and could thus attract investors. however, we already observed a slight drop in european share prices last friday. according to market analysts, this was explained by fears concerning 1 / 4 bis central bankers'speeches protectionism and emes ’ growth prospects as well as the possible resulting decline in global trade. besides these external concerns, europe ’ s internal problems may deter it from fully reaping the benefits from the expected expansion in the u. s. indeed, a range of political risks may induce economic shocks. to face heightened world uncertainty, europe would need to deepen its unity and integration, relying more on its domestic market to underpin higher growth. in turn, this implies that europe needs more expansionary macroeconomic policies and more reforms in the regulatory and competition policy fields, in order to improve the economy ’ s supply side. without higher real and nominal economic growth, europe will have greater difficulty in overcoming its challenges. euro area outlook so far, monetary policy has been the only expansionary macroeconomic policy in support of the recovery. yet, securing sustained economic growth and employment cannot be dependent on monetary policy alone. at the national and european levels, a much more comprehensive policy response, than has been the case to date, is needed. mainly, structural reforms and fiscal policy have yet to deliver their share to support economic activity and counteract the “ low growth trap ” dynamics faced by advanced economies at present. the euro area recovery is continuing its moderate but steady pace, supported by the ecb ’ s policies.