Several safeguards are in place to minimise potential distortive effects on market functioning and price formation (such as the issuer limit and the issue share limit of 33%). There has been a prominent financial stability dimension in all unconventional measures taken, but the existing institutional framework ensures that monetary policy is the last line of defence with respect to preserving financial stability. The establishment of the European banking union, in particular the Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM), has taken monetary policy one step further away from financial stability issues. Progress has been made to ensure that regulatory capture and forbearance are minimised and that shareholders bear responsibility and face the consequences of failure. But we are not there yet. These mechanisms need to be complemented by a common system of deposit protection, which would further bolster financial stability by reducing the risk of bank runs in crisis times. Conclusion To conclude, unconventional policies have been complicated to implement and to communicate. But they have been effective in enhancing our ability to deliver on our mandate in a medium-term perspective. Our measures have been designed to complement each other and have proved adaptable to and effective against the series of shocks which have buffeted the euro area economy. The complex nature of unconventional measures has repercussions for the transparency and accountability dimension of central bank independence. But they were a sine qua non for our mandate to be respected.

Adherence to the oft-quoted Bagehot principle (“lend freely at a high rate against good collateral” to solvent, but illiquid institutions2) ensured that lender of last resort activities did not threaten monetary stability. The pendulum began to swing away from this pre-war consensus when World War I prompted many countries to subordinate monetary policy to financing war and to suspend the gold standard. Countries returning to the gold standard after World War I, however, turned to overly rigid management of monetary affairs. Lacking the necessary discretion, following the Wall Street crash and the global recession in 1929, and the subsequent banking crisis, monetary policy prompted a precipitous collapse in money and prices.3 This spawned the greatest loss in jobs and output on record in what came to be remembered as the Great Depression. In a fateful irony of monetary history, the role of monetary policy in precipitating these calamitous events did not usher in monetary reform. On the contrary, notions hardened that monetary policy was powerless and that macroeconomic stability needed to be safeguarded through other policies.4 This shift in emphasis culminated in fiscal dominance, which contributed to the monetary mismanagement of the 1960s and 70s, paving the way for the “Great Inflation”. Only a few countries that preserved central bank independence, such as Germany, were able to maintain low inflation rates throughout these years. The Great Inflation was eventually overcome as monetary policy once again gained centre stage and was recognised as a powerful factor in macroeconomic stability.