As for financial asset prices, their current level is high and can only be justified by the prospect of a continuing reduction in public and private debt levels in euro area countries, and sustained reform efforts to lift productivity. A continued rise that was not matched by underlying improvements would be a matter of concern, and should be addressed using the macro-prudential instruments available.
This has the potential to enhance the credibility of the framework and strengthen market discipline. At the same time, as the reforms consider changes to well-established deposit insurance schemes, it is important to avoid unwanted side effects. Let me recap: Recent events have highlighted weaknesses in the banking sector during periods of monetary policy tightening.