safeguard financial stability and mitigate moral hazard. for a country like the netherlands – a small open economy with a number of very large and interconnected financial institutions – addressing this problem is even more important. these institutions play a vital role in the dutch financial system and real economy. in order to tackle the sifi problem the basel committee together with the financial stability board are working on additional measures for systemic banks. these measures first involve more intensive supervision and a higher loss absorbing capacity, primarily to reduce the probability of a default of a systemic bank. this will mean that possibly systemic banks will be required to hold larger capital buffers. secondly, the measures involve improving the resolution capacity of national authorities and the requirement for systemic banks to develop recovery and resolution plans. this should help to make it easier to wind down any type of institution in an orderly fashion which will reduce the impact of a failure of a systemic bank. moreover, the basel committee is working on a proposal for a methodology to identify systemic banks. a distinction will be made between domestic and global sifis, and stricter rules will apply to the latter group of institutions. let me be clear, we are not talking about hundreds of banks, but rather a few dozens, which because of their size, interconnectedness, or limited substitutability could pose a risk to the international financial sector. this will help secure that at least the externalities associated with those institutions that are most interconnected on a global scale will be addressed. the temporary changed role of central banks besides basel iii, the financial markets have been influenced significantly by the activities of central banks. their role has dramatically changed in the crisis, owing to the unconventional policy measures, which are meant to be temporary. in autumn 2008, enhanced credit support to the interbank market was introduced in the euro area, by way of unlimited liquidity supply to banks against adequate collateral. this has supported monetary transmission and prevented a credit rationing of the private sector. for the same purpose, the eurosystem purchased covered bonds issued by banks on a limited scale. this program has already been completed last year. in may 2010, when the sovereign debt crisis erupted, the phasing out of the extended refinancing operations was temporary delayed and the securities markets programme started. this bond purchasing program aims at non - functioning eurozone bonds markets. bis central bankers ’ speeches the eurosystem buys bonds from monetary counterparties, while the liquidity creation is sterilised by the iss

##uance of term deposits. the program has prevented that bond markets collapsed due to a drying up of market liquidity. it has supported the transmission of the policy rate to longer term interest rates in bond markets. the eurosystem has purchased eur 77 billion government bonds of emu countries so far, which is a substantial share of the government bond markets in the most affected countries. this is an unhealthy situation, since it creates an undesired dependence of governments on the central bank. moreover, an extended government bond portfolio of the eurosystem is not desirable from a risk management perspective. the european debt crisis given the fact that monetary policy has been fully stretched, it is crucial that governments take their responsibilities to tackle the root causes of the sovereign debt crisis. to this end, europe and the imf established the european financial stability facility ( efsf ), an ultimate safety net that could be resorted to if needed, as ireland did in november. it is important that governments keep improving the efsf in terms of both quantity and quality, meaning maximum flexibility in the intervention of the efsf. to be effective in supporting market confidence and prevent a further escalation of the crisis, a convincing increase of the level of available capital in the efsf is desired. the european stability mechanism ( esm ) will replace the efsf in 2013. last month the european council agreed that the esm will have an effective lending capacity of eur 500 billion. by exception, the fund will be able to buy sovereign bonds in the primary market. debt purchases in the secondary market remain impossible, which i regret, since it complicates a transition of responsibilities from central banks to governments. any financial assistance to be granted under the esm will be subject to strict conditionality and provides for involvement of private creditors in the unexpected event of insolvency, in line with imf policies. to facilitate this process, from june 2013 onward, standardised collective action clauses ( cacs ) will be included in newly issued bonds with a maturity longer than one year. moreover, the esm gets a preferred creditor status, junior only to the imf. these elements have made investors nervous, but probably markets will get used to them. they could enhance the disciplining market influence on sovereign debtors, although conditions to involve the private sector should be flexible, to prevent a disruption of market access by sovereigns and to prevent that credit spreads correct too abruptly