in profitability, driven by large increases in loan loss provisions. beyond cyclical challenges, euro area banks ’ profitability prospects are further hindered by ongoing structural problems, such as low cost - efficiency and overcapacity. fiscal and monetary policy measures are significantly helping to support financial stability by reducing or delaying banks ’ credit losses and enhancing market liquidity. micro - and macroprudential authorities have acted swiftly and introduced a range of capital relief measures to help the banking system maintain the flow of credit. ecb banking supervision has allowed banks to temporarily operate below the level of capital defined by pillar 2 guidance and the combined buffer requirement. banks are now also allowed to meet pillar 2 requirements with lower quality capital. it has increased the flexibility in accounting rules and the recognition of nonperforming loans. furthermore, ecb banking supervision recommended that banks limit capital distribution by refraining from paying dividends or buying back shares. on the macroprudential side, national authorities have either announced a full release of countercyclical capital buffers or revoked previously announced increases to these buffers. they have also released or reduced buffer requirements for structural risks and delayed the implementation of new requirements. these swift micro - and macroprudential policy actions sent a clear signal that banks are encouraged to make use of their existing capital buffers so they can continue to provide key financial services and absorb losses while avoiding abrupt and excessive deleveraging that would be harmful for the economy. indeed, prudential buffers are designed to be used, or drawn down, in periods of stress. ecb analysis shows that economic outcomes can be considerably better when banks use their buffers while maintaining lending to the real economy, rather than deleveraging in order to preserve them. while using the buffers can have initial negative effects on bank solvency ratios, it ultimately reduces bank losses as the economy can remain healthier due to the easing of credit constraints. these results suggest that there is currently no trade - off between using buffers for lending now and using them to absorb losses later, as using buffers now will help to reduce losses in the future. taken together, these measures should help the euro area banking system to sustain lending to households and companies while weathering losses. i will now turn to the non - bank financial sector and to investment funds in particular. as the market sell - off intensified in late february and early march 2020, investment funds experienced exceptionally large outflows similar in magnitude to those seen during

luis de guindos : financial stability and the pandemic crisis speech by mr luis de guindos, vice - president of the european central bank, at the frankfurt finance summit, frankfurt am main, 22 june 2020. * * * as the last speaker of the day, after providing you with a brief overview of the economic outlook for the euro area, i will focus my remarks on the financial sector, the stability of the financial system as a necessary condition for the recovery from the pandemic crisis and related policy issues. the euro area is experiencing an unprecedented contraction. following a sharp drop in real gdp of 3. 6 % in the first quarter of the year, a much larger contraction is expected in the second quarter, with eurosystem staff projections seeing a fall of 13 %. after this unprecedented downturn, a rebound in activity is expected in the second half of the year, supported by very accommodative monetary and fiscal policies, along with an expected gradual resumption in global activity. however, the speed and scale of this recovery are extremely uncertain. eurosystem staff macroeconomic projections for the euro area foresee real gdp falling by 8. 7 % in 2020 and rebounding to growth rates of 5. 2 % in 2021 and 3. 3 % in 2022, which means that gdp at the end of 2022 will still be 4 % lower than projected in our march 2020 staff projections. turning to inflation, euro area headline inflation is declining sharply and is expected to remain subdued this year. euro area annual hicp inflation decreased to 0. 1 % in may, down from 0. 3 % in april, mainly on account of lower energy price inflation. over the medium term, weaker demand is expected to put downward pressure on inflation, which will be only partially offset by upward pressures related to supply constraints. annual hicp inflation is projected to be 0. 3 % in 2020, 0. 8 % in 2021 and 1. 3 % in 2022 in the june 2020 eurosystem staff projections. the monetary policy measures taken by the ecb in march were critical in removing the tail risk of the pandemic, with the drop in economic activity and rising financial market turmoil morphing into a financial crisis. that risk has receded materially since march. however, in our reassessment of the situation in june, two main factors called for additional monetary policy easing : the deteriorating inflation outlook threatening our medium - term price stability objective and