An important achievement within the EMEAP process has been the establishment of a Monetary and Financial Stability Committee, or MFSC, which is charged with the mandate of facilitating greater regional collaboration in preserving monetary and financial stability as well as in the development of regional financial markets. Since its establishment, the MFSC has exceeded expectations in terms of the commitment towards supporting regional monetary and financial surveillance, and in advancing efforts to institutionalize cross-border crisis management and resolution arrangements. These developments will contribute towards reducing any procyclical impact of Basel II and facilitating over time, refinements to the risk parameters that are more appropriate to local and regional experiences. The continuation of such efforts at the national and regional levels will reduce the prospects for potential disruptions in the regional financial systems. One of the most important consequences of Basel II lies in the effect that it will have in sharpening the focus on corporate governance in banking institutions. While there has been considerable attention focused on the quantitative implications and operational aspects of the Basel II framework, there has been less attention given to the corporate governance dimensions associated with its implementation. The expectations on the board and senior management oversight are significantly higher under Basel II. The board of directors is expected to ensure that a sufficiently strong risk control framework is in place before banks can adopt the more advanced approach.
In my remarks today, I would like to expand on three points. First, I want to show how a very severe double dip crisis required the ECB to deploy unconventional instruments to ensure price stability. And our measures are proving effective: incoming data confirm that the cyclical recovery of the euro area economy is becoming increasingly solid and that downside risks have further diminished. Second, I will discuss the possible side effects of these measures. I will consider the different dimensions in which our monetary policy affects people’s finances and welfare, which are sometimes overlooked in the current debate. Finally, I will outline why the ECB cannot be the only actor contributing to the recovery. Other economic, financial and fiscal policies are essential to ensure a sustained recovery. Recovering from the crisis: the role of monetary policy Let me start by recalling where we came from. The Great Recession, as it is called, resulted in a protracted period of low inflation and low growth. Specifically, the euro area faced two interlinked and successive crises – a financial crisis in 2008 and a sovereign debt crisis that started to emerge in 2011 and derailed the rebound. The recovery that began in mid-2013 lost steam in the summer of 2014 as the external environment became more uncertain. At the beginning of 2014, credit growth was contracting at an annual pace of more than 3%, while overall economic growth was stalling.