 Good morning everybody. Welcome to the third ECB forum on banking supervision for me is up. It's a real pleasure to participate In this event and to make the the welcome and remarks November 2014 exactly five years ago was certainly a crossroads for the euro area banking sector The creation of the single supervisory mechanism comfort both micro and macro potential responsibilities on the ECB. 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 the interaction in the conduct of preventive and counter cyclical Maca potential policies Looking back the financial crisis was a wake-up call for all of us to strengthen financial regulation and banking supervision For Europe it especially implied harmonizing supervision across member states to protect it from national agendas But the crisis also showed that supervising individual institutions in isolation Cannot safeguard the stability of the system as a whole Maca potential policy has to complement supervisory scrutiny by accounting for system-wide microfinancial feedback loops Thanks to this system-wide perspective Maca potential policy policy can address structural vulnerabilities and act Controcically tightening requirements when we see excessive risk taking and loosening them to avoid a great crunch after risks have materialized Embedding both micro and macro potential responsibilities within the ECB Ensures that our actions are based on consistent information and are coordinated for the banking union as a whole While retaining ultimate responsibility the ECB carries out its supervisory tasks within the single supervisory mechanism comprising the ECB and national competent authorities In turn, the accommodation national authorities remain the first line of defense to promptly counter emerging systemic risks But the ECB can set higher my confidential requirements than those set by national authorities if necessary National national and European bodies complement each other and have jointly strengthened our banking and financial system Exercising the micro and my confidential function requires close coordination and cooperation One of the most notable examples is a stress testing The biennial EU wide the stress test Exercises are my confidential my confidential in nature and based on a constrained bottom-up approach They aim to assess the resilience of the largest EU create institutions to adverse economic and financial circumstances The stress test exercises are important inputs for the ECB supervisor review and evaluation process and Provide valuable insights for broader financial stability analysis based on granular information Over the last five years cooperation between micro and my confidential authorities has increased in all phases of a stress testing process Today micro and my confidential supervision complement each other by building on the respective knowledge of the banking system To provide a sound and credible assessment of banks resilience to stress For instance during the preparatory phase supervisors and regulators discuss in detail the stress test methodology and the calibration of the adverse scenario in the execution phase supervisors conduct their quality assurance of banks bottom-up stress tests by challenging banks own figures Also using results from my confidential top-down models The top-down models are not only employed by supervisors to gain a macro potential perspective They can be used more broadly to understand the aggregate implications of banks dynamic responses to stress The major advantage of these models is that they account for the propagation and amplification of shocks across the banking system and the real economy Today's stress testing framework with its micro micro and macro potential elements is the result of sustained improvements since the financial crisis Thanks to the ongoing involvement of all stakeholders The continued importance of a stakeholder involvement is already apparent Discussions about the design of the long-term stress test strategy in Europe are underway with both the ECB and the European Banking Authority Without pre-empty in future discussions about this strategy Our experiences have so far shown the benefits of including top-down approaches in supervisory assessments And of considering the wider macro potential dimensions of a stress testing in particular Looking ahead, I believe that top-down stress test models could play a more important role in Disciplining banks and reducing their incentives so to systematically underestimate their vulnerabilities These models will also help micro and macro potential authorities to address challenges in the current macro financial environment Over the past few months, we have observed a deteriorating global economic outlook and increasing uncertainty This environment might put pressure on banks profitability and hamper their Intermediation capacity as margins become squeezed and the flow of new business slows down Under these conditions, it is particularly important that banks remain resilient and can withstand adverse shocks Since the financial crisis the resilience of your area banks has improved significantly This has been facilitated by the economic recovery and by an accommodative monetary policy stance But most of all it reflects both increased market pressure for banks to be well capitalized and the introduction of regulatory reforms including macro potential buffers The current implemented macro potential buffers amount to 1% of risk weighted assets and are intended to absorb losses by banks Of all these buffers only the counter cyclical capital buffers CCYB can be released The remaining buffers are structural in nature and are not intended to be released in a severe downturn Should bank capital ratios fall below the combined buffer requirements They would also breach the thresholds for the maximum distribable amount MDA Once the MDA thresholds are breached banks face automatic restrictions on their profit distribution to ensure that they keep funds on the balance sheets Banks will likely want to avoid these restrictions even in a systemic way In such an event banks may have the incentive to prop up capital ratios by delivering and disposing assets instead of dipping into the buffers The resulting great crunch would persically aggravate the downturn as experienced in previous crisis episodes Only with the visible buffers in place can macro potential policy fully play its counter cyclical role In another scenario the macro potential authority would release the buffer and thereby lower the MDA threshold Do we fully effective the free capital space could need to support the economy and not be used to satisfy Satisfy shareholders demand for dividends The CCYB is the instrument designed by by legislation to be released However, the CCB has only recently be announced and activated in the euro area Just seven of the 19 euro area countries have activated it as you know And it represents only a very limited amount of capital relative to the requirements The limited the limited available capital for release constraints in the room for maneuver of my computational authorities Making it harder to support economy in a severe downturn The current environment it is therefore legitimate to question whether the banking system has a sufficiently large capital buffer that can be released Even if we consider the level of capital to be appropriate There are still seems to be a scope to have a higher share of capital in the form of Releasable buffers Looking around the world. We see that other authorities for example in the UK and the United States are having similar discussions Let me conclude with establishment of the single supervisory mechanism This is it was given micro and macro prudential responsibilities and powers This setup aims to ensure that the two policies are well coordinated At the same time the current macro financial environment has become more challenging The bleaker a more uncertain outlook can create the strains for bank profitability Challenges also arise for the dumb bank sector with potential spillovers for the banking industry So for us to ensure the stability of the banking sector We also need to deepen to deepen our understanding of the role of non-bank institutions a monitor Accordingly the risks associated with their activities Continuing to provide a consistent policy response in the current micro financial environment Requires the counter cyclical role of macro prudential policy to be strengthened by ensuring that Releasable buffers are available Ultimately the macro prudential and macro prudential functions will need to rely on each other To provide successful potential policies that ensure financial stability and support financial Intermediation and the performance of the economy. Thank you