Lucas Papademos: Opening remarks at the press briefing on the occasion of the publication of the December 2009 ECB Financial Stability Review Opening remarks by Mr Lucas Papademos, Vice President of the European Central Bank, at the press briefing on the occasion of the publication of the December 2009 ECB Financial Stability Review, Frankfurt am Main, 18 December 2009. * I. *  *  Introduction  My colleagues and I would like to welcome you to today’s press briefing on the occasion of the publication of the December 2009 edition of the ECB Financial Stability Review. 1 The primary objective of the Review is to consider the main sources of risk to the stability of the euro area financial system and provide a comprehensive assessment of the capacity of the financial system to absorb adverse disturbances. As usual, the Review has integrated the interdepartmental work of the ECB with that of the Banking Supervision Committee (BSC) of the ESCB. It contains 14 boxes and five special feature articles that address topical financial stability issues in a more focused and analytical manner. As in the past, we have prepared a summary note that highlights some key messages of our analysis and assessment. Over the past 12 months, the extraordinary policy measures taken by central banks and governments have succeeded in restoring confidence in, and strengthening the resilience of, financial systems around the world. In particular, financial system support measures have been addressing the funding problems of key financial institutions and have bolstered their capital positions.

Funding liquidity problems continue to bring pressure on the major banks’ operations. While the conditions have improved substantially in most funding segments throughout 2009, including the money markets, some of these institutions and parts of the broader euro area banking system, remain reliant on temporary support measures extended by the Eurosystem and governments. Box 11 summarises the government measures to support the banking sector and discusses their implications for fiscal balances. Regarding the implementation of the measures, several conclusions can be drawn: First, the take-up rate has been generally low across all measures, but there are substantial variations: the use of recapitalisation measures has been relatively widespread, while the take-up rate for the issuance of bank bonds with government guarantees has been considerably lower than expected. Second, the largest part of the financial support has been provided to a relatively small number of institutions (See Chart 12). Indeed, about half of the extended support has been absorbed by the largest three recipient institutions in each category of support. The various measures to support the financial sector amount to considerable actual and contingent liabilities for euro area governments. Although they are expected to have only a small direct impact on government deficits in the short to medium term, potential fiscal risks in the form of higher refinancing costs are sizeable for all countries that have provided significant financial system support, as these measures seem to have had a negative effect on market perceptions of the creditworthiness of the respective governments.