This response by the prudential authorities, along with the monetary and fiscal policy measures adopted, has allowed the initial impact of the shock to be absorbed, it has smoothed the provision of credit to the economy and it has prevented the materialisation of  3  See the speech by the Governor of the Banco de España “Retos y políticas para la estabilidad financiera ante la pandemia”, October 2020. 5  a systemic risk in the financial system that would have heightened the crisis further and made it more persistent Looking ahead, however, set against the uneven and uncertain recovery I described earlier we cannot rule out two outcomes: that the risks identified materialise, and that their impact and persistence are greater than expected. In this respect, the economic and supervisory authorities must continue to closely monitor banks and financial markets so that they may continue providing the necessary flow of credit to the economy. We must continue adopting measures to mitigate the risks and, naturally, we must stand ready to respond appropriately should these risks materialise. In the banking area, this response can only be pan-European, given the commitment to the Banking Union and the need to avoid the financial fragmentation problems that might stem from an exclusively national response. European fiscal policy The ECB’s monetary policy measures and action taken by the regulatory authorities have been forceful, aimed at delivering a common, truly European, response to the economic crisis associated with the pandemic.
One of the most important is determined by what we know about the functioning of the economy and the effects of monetary policy. Not everyone agrees, however, that transparency is a good thing for attaining financial stability. Many people argue that so-called constructive ambiguity is the best way to avoid problems of moral hazard in the banking industry. I believe, however, that transparency is important in this area as well. Banks that are "too big to fail" from a systemic point of view will in any case count on support from the government. Especially when it comes to countries like Sweden, which experienced a severe banking crisis not so long ago, it is likely that support to banks that encounter financial problems will be expected if nothing else is being communicated. Another risk associated with constructive ambiguity is that it could limit the motivation of central banks to seriously consider what to do in a crisis. In other words, it could provide an excuse for not thinking the issues through. However, if you are not prepared, you could easily become the bank's prisoner in a time of crisis. Through deeper analysis of the "too big to fail" problem and open communication of crisis strategies, it should be possible if anything to mitigate the moral hazard problem. If you can show that the banks do not need to be systemically important, it should make banks even more uncertain about the possibility of receiving support than any policy of constructive ambiguity.