Third, OMTs will focus on the shorter part of the yield curve, and in particular on sovereign bonds with a maturity of between one and three years. This underscores the monetary policy nature of such outright transactions, the principle of which was foreseen in the ECB Statute. And it buttresses the OMTs’ aim to address reversibility premia which, as I argued above, have tended to manifest themselves at the short end of the term structure, while addressing the fact that credit risk embedded in longer-term yields should reflect the credibility of countries’ economic and financial adjustment programmes. Fourth, there are no ex ante quantitative limits on the size of OMTs. This makes clear that the ECB is committed to do whatever it takes, within its mandate, to preserve the solidity and irreversibility of the currency. Fifth, the ECB accepts the same (pari passu) treatment as private or other creditors with respect to bonds purchased in the context of OMTs. Finally, the liquidity created through OMTs will be fully sterilised. This reflects the role of OMTs in counteracting destructive self-fulfilling equilibria rather than altering the aggregate liquidity stance. The main features of the framework for OMTs outlined here address by design also three concerns or questions sometimes voiced in relation to outright purchases of government bonds by a central bank. The first concern can be summed up in two questions: are OMTs a form of monetary financing of governments and will inflation be unleashed? The answer to both questions is: No. In fact, quite the opposite.

Such reflection served to promote discussion on the adequacy of financial markets’ regulation to withstand crises. Two important shortfalls in the regulatory framework were identified. First, the banking legislation established clear rules for the orderly entry of new participants in the market but did not define the mandatory requirements for an orderly exit for the troubled market participants. Now in the post-crisis period, almost everyone agrees that, in the absence of a resolution regime, in order for a smooth and orderly exit of problematic banks, governments were forced to use public funds. Second, as a result of the high level of financial integration internal shocks in a given country were transmitted across borders to other countries, transforming them into a global issue. The post-crisis analysis motivated the European Union to assess issues related to banks’ recovery and resolution, and consider strengthening the existing cross-border cooperation, to reflect better the actual integration of financial markets. Today, the banking union in Europe has introduced harmonized rules about resolution throughout the European Union, and a unified application for the euro area. More specifically, the legislation of the European Union has activated the European Bank Recovery and Resolution Directive (BRRD) for all member countries and has established the Single Resolution Mechanism (SRM) in the euro area, as well. The BRRD creates such instruments for a preventive recovery and early intervention in a bank, designed to avoid the failure of a bank, as well as facilitate an orderly resolution when banks are failing, to protect the public interest.