Forecasting also has an important role to play in the Eurosystem, albeit a less prominent one than in central banks pursuing an inflation-targeting strategy. The Eurosystem’s Governing Council bases its comprehensive assessment of the risks to price stability and its policy decisions on a broad spectrum of information provided by two analytical tools: the economic analysis and the monetary analysis.
The increased complexity of investment portfolios and off-balance-sheet activity similarly subjects institutions to increased liquidity and market risk. The issuance of trust preferred stock through pooled securities has enhanced the access of smaller banking organizations to capital, though it leverages common equity of the parent company and, in some cases, puts pressure on insured subsidiaries to support the increased cash-flow requirements of these instruments.