In general, we shape our supervisory expectations for each portfolio by considering the increase in safety and soundness that we are likely to achieve through a specific practice or requirement, in light of the regulatory costs for the banking organizations in the portfolio and the impact that the stress or failure of those institutions would likely have on credit intermediation, the deposit insurance fund, and financial stability.
Going one step further: our measures have played a key role in preserving stability in the euro area – and that includes financial stability. Let me now elaborate on the potential side effects of a very accommodative monetary policy on financial stability. One of those side effects concerns the impact on banks’ profitability. Let us first look at the data.