Having said this, I do not mean that there is no hierarchy between the two objectives. I call for strong complementarity, not for a merging of objectives. To be more explicit, I consider that a monetary policy strategy that targeted asset prices would be a mistake. As central bankers, we need to avoid confusing economic agents; our role is to anchor expectations and ensure business continuity. 4. – There are still challenges to be addressed to provide authorities with the necessary policy toolbox for financial stability For it to be more effective, we still face a number of challenges in order to achieve an optimal macroprudential regulatory framework. First, we have to complete the regulatory framework for banks, by finalising the Basel III reform: I strongly wish and hope that we can reach a fair and 3/4  BIS central bankers' speeches  reasonable agreement soon. A revision of the European Macroprudential Framework is currently underway at the European Commission level. Moreover, decisive progress should be made to better provide macroprudential authorities with policy tools properly designed to address financial risks beyond banking. Market financing, shadow banking, Fintechs, pension funds, financial innovations are all part of the scope of macroprudential policy, insofar as they have the potential to pose a financial risk to our economies. Our next issue is less the solvency of banks than the liquidity of non-banks.
A comprehensive assessment of our current policy package should not only look at the intended consequences and side effects that can be observed, but also weigh them up against what would have happened in the absence of our exceptional policy [SLIDE 3]. How profitable would our banking system now be had we not eliminated the 2014–15 deflation risk? The landscape for our banking system would have been somewhat dire. In a deflationary environment – and we have avoided this lethal danger thanks to our monetary policy –, the debt-servicing cost for borrowers is heavier in real terms. Defaults are more frequent, and less sustainable debts result in higher credit spreads. The risk of a debt deflation spiral then increases further. But this has been avoided in the euro area and if the price of this is a temporary reduction in bank interest margins, then it is worth incurring such a secondary side effect. 2. – Let me turn now to the price of assets and the financial cycle At the level of the euro area, we consider the financial stability situation to be overall under control. The solvency ratios of significant euro area institutions have improved continuously since 2014, reaching 15% on average in Q2 2017. Overall private debt in the euro zone diminished as a share of GDP: 128% in 2011, 122% today. Non-performing loan ratios have also declined, especially for small and medium sized enterprises. I support the recent SSM initiative for provision rules for new flows of NPL, despite all the criticisms.