they issued in the whole second half of 2011. banks are meeting their new capital requirements. the capital plans submitted to the european banking authority ( eba ) indicate an intention to exceed the benchmarks by more than 20 %. eba has also confirmed that there will be no stress test this year. bank lending is also stabilising. banks are starting to assess their financial situation more positively and in many cases their willingness to make loans is increasing. bis central bankers ’ speeches how has the picture changed so clearly in only four months? there are two parts to the answer. first, the doomsday predictions were always exaggerated. not because the situation last november was not very serious. but because the willingness of euro area authorities to take the measures necessary to restore stability was greater than many commentators realised. second, euro area authorities have proved their commitment to safeguarding financial stability through a number of important policy measures. the eurosystem, the eu institutions and national authorities have all played a role in constructing a comprehensive and coherent response to the economic, financial and fiscal challenges that we face. let me now explain the key elements of this response in more detail. the policy response of the eurosystem the primary explanation for the improvement in sentiment over the last few months has been the measures taken by the eurosystem – that is, we at the european central bank ( ecb ) and our colleagues at the national central banks of the 17 countries that share the euro. as you know, since december last year the eurosystem has launched two long - term refinancing operations – ltros – with a maturity of three years. while the total liquidity requested by banks in these operations amounted to around 1 trillion euro, the net liquidity injection by the eurosystem has been around half a trillion euro because the other half has been shifted over from other operations. let me be clear about why we implemented the three - year ltros. it was not to support sovereign debt markets. it was also not to bolster bank profits. the ltros were specifically designed to prevent a credit crunch that could compromise the maintenance of price stability in the euro area. with funding markets closed, banks needed liquidity assurance over the medium term to avoid pre - emptive deleveraging and to continue lending. to understand why these operations were necessary requires a euro area wide perspective. it would be misleading to judge the urgency for action – or the necessary responses – based on the situation in any one country or groups

due to the recently observed financial turbulence in the global markets, necessitating a focus on the domestic factors in the process of growth and stability in our country. the prime minister in his opening remarks at the 54th meeting of the national development council, on december 19, 2007, inter - alia said : " there are some clouds on global financial markets following the sub - prime lending crisis. there are worries that the growth of the u. s. and other leading economies may slow down and some may even go into a recession. this may impact both our exports as well as capital flows. our economy is now increasingly integrated into the global economy with the external sector now accounting for almost 40 % of gdp and hence, we cannot be fully immune to international developments. this is not to say that one must be pessimistic and must be less ambitious in our growth targets. it only implies that we need to redouble our efforts to maintain the domestic drivers of growth and ensure that policy facilitates even faster growth. " to sum up, the public policy in india recognises that ( a ) appropriate management of capital account is critical for both growth and stability ; ( b ) the cautious approach to capital account has given us leeway ; ( c ) there are preferences in regard to different types of capital flows ; ( d ) some fiscal costs are consciously incurred as necessary on account of sterilisation ; ( e ) monetary and exchange rate management are very complex in the context of wellknown trilemma, and in the current complex global environment, indian cannot be immune to global development but we should maintain domestic drivers to growth. v. policy perspectives admittedly there are several dilemmas, trade - offs and judgments in the process of managing capital account. the intensified pressures due to large and volatile capital flows in an atmosphere of global uncertainties make the task significantly complex and critical. i propose to summarise the possible approaches in this regard, mainly in terms of analysis. first, a view needs to be taken, though difficult, as to whether the capital flows are of enduring nature or temporary. prudence demands that, in terms of initial reaction, all large capital inflows are treated as temporary, and if these flows result in excess volatility in the forex markets, some intervention becomes necessary. the judgment about excess volatility will depend not merely on the quantity of the flow, but, to some extent, on the quality in terms of components of the capital flow.