The ultimate objective is to prevent the possibility of a collapse in broad money leading to a downward adjustment in nominal income. Why do the money multiplier and broad money velocity tend to fall during confidence crises? The money multiplier is a complex function of the public’s preferred ratio of currency holdings to deposits and of banks’ desired ratio of reserves to deposits.
The creation of the Single Supervisory Mechanism conferred both micro- and macroprudential responsibilities on the ECB. [1] I will therefore focus on our achievements and challenges in coordinating both functions. In particular, I will touch upon our joint effort in carrying out banking sector stress tests and our interaction in the conduct of prudential policy in the current environment.