In addition, it is essential that the Central Bank plays its part in underpinning financial stability. As part of the ECB’s Single Supervisory Mechanism (SSM), an important dimension is to make sure that capital ratios and liquidity ratios are sufficient for banks to withstand adverse shocks, which is further reinforced by a proactive supervisory engagement programme.
Since the failure of Lehman Brothers, governments have, in response to the rapid economic and financial contraction, injected public capital into financial institutions and have implemented large-scale fiscal stimulus measures. Such large-scale policy interventions were indispensable to maintain financial system stability and stem the plunge in economic activity.