the financial system so that it can withstand adverse movements in credit and property prices, and other macroeconomic shocks. policy measures are forward - looking and seek to reduce the potential for imbalances to accumulate, given that they could lead to financial distress. intermediate objectives are : to prevent excessive credit growth and leverage ; to prevent excessive maturity mismatch and market illiquidity ; to limit direct and indirect exposure concentration ; and to reduce the potential for systemically important banks to adopt destabilising strategies and to mitigate the impact of such actions. 3 2 / 7 bis central bankers'speeches these are also of fundamental concern for microprudential supervisors – we just look at it from an individual institutional perspective. in the main, supervisors are involved in national macroprudential authorities. 4 but the advent of macroprudential policy has also coincided with a change in banking supervision. macroeconomic assessments first, macroeconomic assessments have become a fundamental component of microprudential supervision. stress testing, for example, is now a key tool of supervisors with the recent eu - wide banking sector stress test showing the variety of macroeconomic variables considered including gdp, inflation, unemployment, asset prices and interest rates. 5 stress tests involve macro considerations in identifying risks and setting out a plausible scenario while the results showing how banks are affected are a key input into setting individual bank capital requirements. business model analysis also takes macro - financial factors into account when assessing risks faced by banks. last year, for example, ecb banking supervision published a thematic review on profitability and business models, which highlighted that low profitability and pressure on revenues from the economic environment, among other factors, affect the european banking sector. 6 the findings from the thematic review feed into the supervisory review and evaluation process ( srep ). capital requirements second, broadly speaking, capital levels have increased markedly in europe over the past decade. at the end of 2009, the average tier 1 capital ratio stood at 10. 2 per cent while at end2018, this had improved to 16. 3 per cent. 7 today, capital requirements of banks are decided by different authorities and institutions. 8 this reflects the various elements that need to be taken into account when assessing bank capital requirements. different macroeconomic and financial cycles, different structures of economies and different structures of financial systems, among other factors, justify different capital requirements. banking union does not render these differences inconsequential – just as single supervision does not mean that every institution has

integrated approach. this is important to ensure that the entire financial system serves the best interests of consumers and wider society. banking union and cmu so where does this leave us? much progress has been made to increase financial stability in the eu and euro area, initially with the establishment of the european system of financial supervision encompassing the european supervisory authorities and the esrb, and then with the establishment of the banking union – notably with the establishment of the single supervisory mechanism ( ssm ) and single resolution mechanism. the first 20 years of emu have been chequered ; the culmination of a 30 - year upswing in the global financial cycle, and the worst economic crisis since the 30 ’ s. 17 the crisis resulted in many important legislative and institutional innovations, with the introduction of the ssm and srm being the most visible. however, the job is not yet complete. to list a few areas of priority : significant work is required in the banking sector to ensure adequate risk reduction in the level of non - performing loans and a build - up of mrel. the issue of liquidity in resolution will need to be addressed within banking union to ensure there is a lender of last resort to provide liquidity support if and when required. more is needed to ensure that banks are resolvable without recourse to the taxpayer. therefore, the second pillar of banking union remains incomplete. the third pillar of the banking union – a european deposit insurance scheme ( edis ) – remains missing. deposit protection should transfer to the european level, as has already happened with banking supervision and bank resolution. completing capital markets union ( cmu ) should also be a priority. deep and liquid capital markets have the potential for private risk - sharing to smooth economic shocks, thus increasing stability. so, much has changed for prudential supervision in response to the measures enacted to preserve financial stability going forward. and what does the next twenty years have in store? well, a lot of work : from regulators and supervisors of all segments of the financial sector, from central banks, from macroprudential authorities, from resolution authorities, and indeed from governments to ensure the right legislative and institutional frameworks and incentives exist for a stable financial system. we have the infrastructure but the effectiveness of the interaction between macro and micro 6 / 7 bis central bankers'speeches needs to be continually worked on, reinforced and improved. without effectiveness of both, the financial system is prone to excessive risk taking, short - termism,