##inancing operations or by setting up a discount window that ensures that banks with unexpected temporary requirements can refinance themselves. while markets listen to central banks, central banks also listen to markets since the price formation in markets reflects agents ’ expectations, in particular concerning inflation, and their assessment of risks ; central banks require such information to make their analyses and take their monetary policy decisions. the smooth functioning of markets and financial stability are therefore essential for the effective transmission of monetary policy. if the shape of the yield curve is evolving regardless of monetary policy decisions, if risk premia are uncorrelated with fundamentals, if market liquidity dries up, then the interest rate channel ceases to function. when this affects banks ’ funding, in particular via a freezing of the interbank market, the bank lending channel seizes up. in such circumstances, central banks must turn to non - standard measures such as direct aggressive interventions to ensure that their monetary policy decisions are effectively transmitted and that markets keep ticking over. needless to say, the recent period has seen many such incidents as well as the implementation of many non - standard measures. among the measures currently in place, some are based on “ quantitative easing ”, which involves the purchasing of securities primarily with a view to generating excess liquidity that in turn moves into all market segments and fosters a better refinancing of the economy ; others are based on “ credit easing ” and aim to restore the functioning of certain particularly disrupted market segments. seen from another angle, certain policies aim to restore the smooth functioning of the interest rate channel by directly impacting the yield curve, others aim to restore the bank lending channel by ensuring that banks can obtain funding beyond the very short - term maturities to which central banks usually confine themselves. in all events, central banks stand in for failing market participants or markets. since 2008, we have seen the fed come to the rescue of the us commercial paper market and the mortgage backed securities market ; we have seen the bank of england purchase in the space of a few months gbp 200 billion in government securities, representing around 15 % of the united kingdom ’ s gdp ; the eurosystem, for its part, has conducted massive oneyear refinancing operations with euro area banks and has kick started the covered bond market, via its eur 60 billion purchase programme. next may, it also start intervening in the government securities market. this calls for further clarification in the light of my earlier

##sing the implementation of monetary policy and financial stability. in this case, we targeted sovereign debt markets because they determine the financing conditions of the country ’ s other issuers. when sovereign debt markets cease to function, the financing needs of the country as a whole cannot be met. this type of intervention is not a quantitative easing operation since no particular amount is set beforehand and all the liquidity provided through the purchase of securities is sterilised in the interbank market via term deposits offered to banks. neither is it a credit easing operation targeting a particular type of agent ; government securities are not purchased in the primary market and the securities in question may be issued by borrowers such as greece that has almost stopped issuing debt due to the mechanism in place to ensure its financing by euro area countries and the imf. it was simply a measure to restore the monetary policy transmission channels via the debt markets. i believe that recent episodes clearly highlight what the markets may expect from central banks, that is to say resolute action to deflate positive and negative asset price bubbles if they interfere with monetary policy transmission channels. each situation may call for an appropriate response and we now know that this includes massive and direct interventions in markets, to some extent similar to foreign exchange interventions. it is plain that this type of action has no constraints in terms of amounts or timeframes ; such amounts are unlimited because central banks can absorb the liquidity injected and they inherently have no liquidity problems in their currency. moreover, i believe that the fact that central banks have shown that they are able to take such action is in itself likely to limit the emergence of asset price disruptions by limiting speculation. some recent modest purchases under our securities market programme have acted as a strong reminder that we were still monitoring very closely the evolution of key markets. but this does not mean that markets and market participants should always expect central banks to make such interventions. similar to its lender of last resort function, the role of buyer of last resort that central banks can take on must not extend to insolvent issuers and must not, at the risk of causing a very dangerous moral hazard, be systematic each time a problem arises. such interventions must result, as rapidly as possible, in a return to normal market functioning, which is the only way to ensure a truly efficient allocation of capital and which enables us to determine economic agents ’ expectations. thank you very much for your kind attention.