and banking 43, pages 1399 – 1421. bis central bankers ’ speeches alleviated the funding constraints of banks extending loans to smes by accepting such loans, and asset - backed securities ( abs ) backed by pools of loans, as collateral in its monetary policy operations. the banco de portugal has been proactive in implementing these measures. additional credit claims alone account for around 15 percent of total collateral posted by portuguese banks with the ecb, and help to generate a large collateral buffer. the ecb will support a revival of the abs market in the euro area, which would help smes to benefit from the improving financing conditions. let me also point out that the restructuring and strong capitalisation of banks is an important condition for restoring the smooth provision of credit to euro area corporates and households. i turn now to the issue of confidence and this allows me to close the circle and go back to the high unemployment costs observed so far. high uncertainty related to falling disposable income and increased unemployment has pushed up the precautionary savings of households. high uncertainty has also kept household confidence low, despite government actions going in the right direction. in this environment, lower prices would improve the purchasing power of households and reduce uncertainty. confidence will be boosted if governments make sure that the burden of the adjustment is equally shared and not distorted by privileged groups and vested interests. the way forward : going structural thanks to the actions of the eu governments and the ecb, and with imf support, signs of stabilisation in the euro area have been increasing in recent months. this provides an opportunity to make further decisive steps forwards. in stressed countries, governments have initiated reforms which are unprecedented in their ambition and scope. there has been an increase in the implementation of politically sensitive reforms in many areas, including public administration, health and pension systems, education, judicial systems, competition frameworks, industrial relations, labour markets, energy markets, network industries, service sectors and in the regulated professions. this list will sound very familiar to you as the portuguese adjustment programme is covering all these areas. the reforms are consistent with the goals set by the european union in 2000 in its lisbon strategy, but at the time there were no incentives to act on these commitments. such reforms, if well designed and fully implemented, will reorient the engines of growth towards high - productivity sectors and enable companies to thrive in the single market and in the global economy. studies based on general equilibrium models have confirmed that the long -

2003 u. s. securities & exchange commission ( sec ) decision allowing mortgage asset based securities ( abs ) to be used in repurchase agreements ( repos ) and the subsequent changes in 2005 to the u. s. bankruptcy law, excluding repos from bankruptcy processes thus rendering them a “ safe haven ”. the crisis and the expansion of finance as in past cases, the recent financial crisis had its origins in excessive leverage and excessive credit or debt creation in the financial system as a whole. these excessive imbalances were not considered a risk by the economic thinking of the time. as credit expanded and assets grew, the share of the financial sector in total gdp increased exponentially. in europe, this led to strong growth of some important universal banks. in the euro area, total bank assets represented 116 % of gdp in 1985 but increased to 219 % in 2000 and to 1 / 11 bis central bankers'speeches 320 % in 2008. already in 2002, the assets of the 12 biggest banks in europe represented 64 % of gdp and as bayoumi states in his recent book, “ they were already becoming too big to fail ”. 1 in the u. s., the increase in finance was mostly due to the expansion of the so - called “ shadow banking ” sector. in 2007, total assets in the shadow banking sector equalled the level of total bank assets. figures concerning non - banks ’ involvement in credit intermediation are also remarkable : the size of euro area investment funds more than tripled from 2007 to the present, from 13 % of total banking assets to the present 41 %. profits are a further indicator of the sector ’ s expansion : in the u. s. financial sector profits climbed from 8 % of the non - financial firms ’ profits at the beginning of the 1980s to a peak of 68 % in 2003, hovering around 30 % in the past few years. 2 the expansion of the financial sector was not enabled by savings invested in the capital of financial institutions but mostly by a redefinition of risk capital and its endorsement by regulators. on the eve of the crisis, a few significant european banks had a leverage ratio ( equity over total assets ) of just 1. 5 % to 2 % while capital ratios were well above the regulatory minimum of 8 %. the “ magic ” of internal models to calculate risk weights in regulatory capital explains the difference, although the low leverage ratio meant that a loss of 3 % of total assets would wipe out banks ’ capital. the