 Welcome, you, to the Fourth Annual ECB Micropodential Policy and Research Conference. This conference is held annually to ensure that we meet regularly and advance our understanding of macropodential policies. This year's focus is on monitoring policy and financial stability, and it represents the conclusion of the ECB's research tax force dedicated to this topic. In my remarks, today I will cover three aspects of macropodential policy and research. First, I will reflect on the economic and financial conditions that may represent challenges for macropodential policy. Second, I will focus on selected achievements at the ECB in advancing the research frontier. And finally, I will address the need of rebalancing capital requirements towards reasonable buffers to allow macropodential authorities to act more effectively in a counter-seqrical manner, especially in adverse economic conditions. As you know, the current environment is characterized by a weakening of the macroeconomic outlook and increasing uncertainty, even though the latest indicators point to a certain level of stabilization of the economic activity. An associated low-for-longer interest rate environment is likely to put pressure on bank profitability. Weak profitability and squeezed margins pose a risk to financial stability as they may hamper banks' intermediation and capital generation capacity. It is thus important to assess the interaction of monetary and macropodential policies while respecting their individual mandates. I am happy to say that quite some research on the interaction of these two policy areas has been undertaken here at the ECB. In particular, two papers of the research task force are dedicated to this issue. One documents the macroeconomic impact of macropodential policy measures and its interaction with monetary policy. A second one sheds light and quantifies the transmission between monetary policy and bank stability. Moreover, ECB research has showcased the particular importance of remaining vigilant about banks' resilience in episodes of increasing cyclical systemic risk. Recent work quantifies how exuberant credit and ex-asset price dynamics lead to large downside risks to bank-level return on assets, putting a banking system's capital at risk over the medium term. The quantification of bank capital at risk can support the calibration of macropodential instruments. In turn, by subjecting the banking sector to specific shocks, a macropodential stress testing framework can help in assessing the capital shortfall in times of stress. Whereas traditional stress testing frameworks focus on initial capital shortfalls, macropodential stress testing frameworks quantify the propagation of costs for banks and the real economy over time. This is the aim of the macro-micro approach which takes into account the heterogeneity in banks' reactions functions. More generally, stress testing has become a key instrument in the macropodential and financial stability toolkit for assessing risks to the banking system in adverse conditions. The bottom-up approach used in the context of the EU-wide stress test relies on banks' own reporting of projections. Based on common scenarios and gives national supervisors and the ECB an important role with regard to quality assurance. Recent research provides tentative evidence that supervisors' scrutiny relating to quality assurance has a disciplining effect on banks' risk taking. We also need to understand how banks will react to the policy measures that are applied to them. A dynamic micro-founded structural model of bank behavior examines changes in capital and liquidity requirements and confirms considerable heterogeneity among banks' reactions. Moreover, our 3D model with default model in the household, non-financial corporations and banking sector has been successfully used in various policy exercises and exemplifies how cutting-edge research can help inform policy decisions. So what's the role of macropodential policy in the current environment? The financial crisis showed that macropodential policies needed to complement supervisory scrutiny by accounting for system-wide macro-financial feedback loops. Macropodential policies called to act counter-cyclically, tightening requirements when we see excessive risk taking and loosening them to avoid a great crunch when risks materialize. Since the crisis, the resilience of euro-area banks has improved significantly and their capital level is currently considered to be adequate. However, in addition to the level of capital, its composition deserves appropriate consideration as well. The macropodential buffers that are currently implemented in the SSM banking system are of a predominantly structural nature and are thus expected to be maintained over the cycle. The counter-cyclical capital buffer, CCYB, is the only buffer that is intended to be released in case of a downturn. However, the CCYB has only been activated by seven of the 19 euro-area countries and currently represents in the aggregate only 0.1% of risk-weighted assets. A lack of releaseable buffers scarps the counter-cyclical role of macropodential authorities. When reaching their combined buffer requirements, banks may uphold capital ratios by disposing assets to avoid the automatic restriction on dividend distribution. If such behavior becomes widespread in the event of systemic stress, it can result in a great crunch, which could aggravate the downturn. This is exactly what we observed in previous crisis episodes and what we should avoid in the future. Macropodential space in the form of realizable buffers could serve as a potential macro-financial stabilization in euro-area countries. The release of the buffers in a downturn should help banks to sustain the flow of credit. In sum, we are in a situation where the overall level of capital requirements is broadly adequate, but the composition may not be optimal. It is therefore important to have a discussion on the need to reallocate capital requirements towards releaseable buffers in a capital-neutral manner. Other national authorities have had or are having similar discussions such as in the United Kingdom and the United States. To me, such a reallocation appears to make sense in the current environment of heightened uncertainty and risks tilted to the downside. The reallocation could be capital neutral because the resulting increase in the CCYB could be offset by a corresponding decrease in other capital requirements. In the case of the Bank of England, it was pillar two capital requirements, as you know. The capital neutral creation of releaseable buffers does not require a regulatory change. Indeed, the CCYB is already enshrined in EU law and transposed in the national context. It is used to address cyclical systemic risks that are common to the entire banking sector. To ensure that all relevant risks in the banking sector are covered, calls for continued close cooperation among all relevant authorities. This includes close coordination of both among micro- and macro-potential authorities, as well as between the ECB and national macro-potential authorities. Obviously, as you know, national authorities will continue to remain first in line to deploy the CCYB to address changing systemic risks in their jurisdictions. Let me conclude. The current macro-financial environment has become more challenging. The lower for longer interest rate environment creates strains on bank profitability with implications for financial stability. This implies that we need to further build our analytical toolkit to identify risks and devise a coherent policy response. It calls for intensifying both our outreach to a state-of-the-art research from academia and our analytical work in house. As mentioned earlier, depending on our understanding on the interplay between monetary and macro-potential policies is a key priority in a low for longer interest rate environment. Furthermore, we aim at better capturing interactions between banks, other market participants, and the real economy in a fully integrated macro-potential stress testing framework, combining macro and micro building blocks. This requires estimating a modeling behavior of financial and non-financial agents to realistically capture their balance sheet adjustments also in times of stress. On the political side, on the policy side, our key priority is to become more agile in fulfilling our counter-scyclical macro-potential policy mandate. We need to ensure that releasable buffers are available to enable the banking system to support the real economy in a downturn. At present, the best option is to incorporate the CCYB in a capital-neutral manner to be able to withstand current handwinds. I wish you all an insightful conference, and thank you very much.