##ity has been deposited back with the ecb, as reflected in considerably slower growth in loans ( the blue lines ). this is an indication of the hesitancy on the part of the banks to buy securities, or to extend loans, whether to other banks or to the non - financial sector. some concern has been expressed about the size of the build - up of liquidity across various economies that could be mobilized by the banks in the eventual post - crisis expansion of loans. however, it must also be noted that the excess liquidity can be eventually reabsorbed by the central banks. in any case, it should also be noted that the provision of additional liquidity by the ecb ( as shown by the red lines in chart 7 ) has been somewhat more moderate than is true for other major central banks such as the federal reserve, as shown in the chart. the ecb has now gone a step further by announcing an outright monetary transactions programme, designed to repair the link between policy rate cuts and ample liquidity provision, on the one hand, and lower borrowing costs, on the other. it is also meant to counter the so - called redenomination or convertibility premium that compensates investors for the perceived risk of a breakup of the monetary union. it ties intervention to strict conditions : it will be used only for countries under an efsf or esm programme. transactions are limited to the shorter end of the yield curve, and would complement esm intervention at the longer end. moreover, the ecb will not take on a senior position in the debt ’ s structure, therefore safeguarding the interest of private - sector investors. as is well known, the announcement of the omt programme has already helped to stabilize the financial markets and reduce sovereign spreads ( see chart 1 ). it is really equivalent to traditional open market operations that central banks have long resorted to in order to provide stability and a better functioning of the monetary transmission process that can get impaired in certain circumstances. the maltese situation the maltese economy has encountered some persistent headwinds. still, the recession observed in the last quarter of 2011 and the first quarter of 2012 was relatively short and mild. since then, the economy has shown a modest recovery. during the second and third quarters of this year, real gdp was up 1. 6 % on the same period of 2011. the inflation rate in malta has recently exceeded that of the euro area average. the hicp measure of the year - on -

as to adjust the banking models used to this now safer but more constrained model. bis central bankers ’ speeches closing an institutional gap the concept of sustainability can also be applied to the funding of the government ’ s capital expenditure programme. in particular, the funding of infrastructure and public utilities through fiscal resources may also have to be reviewed in light of the public sector funding constraints. the domestic financial sector has witnessed remarkable structural developments over past years. however, there still appears to be an institutional gap in respect of the financing of certain types of projects for which the hitherto traditional sources of funding – commercial bank loans and government budgetary resources – may not necessarily remain the ideal financing avenues in view of the new challenges facing the financial system. i firmly believe that a development or promotional bank needs to be established. such a public sector institution would be geared to the promotion of economic activity in its wider sense complementing commercial banks. in my speech during the course of last year ’ s ifs annual dinner, i had made reference to the important role that the possible establishment of such a bank could play in promoting the economy and assisting the government in social and environmental projects. tonight i would like to elaborate further. in my view, a promotional or development bank could be instrumental in contributing to a more effective mobilisation of the substantial excess liquidity characterising the financial sector and to a more efficient deployment of certain types of government assets, especially underutilised real estate. it should also serve as a catalyst to support the structural, economic, social and environmental policies of the government, particularly in connection with the long term financing of priority projects. moreover, there are strong indications that the deceleration in domestic credit activity in malta is not due to any shortage of liquidity in the banking sector but rather to the reluctance on the part of banks to extend their exposure beyond certain limits to a number of economic sectors. a promotional or development bank could enable such sectors to gain better access to financing support that may not be readily available from other sources on reasonable terms. a promotional or development bank can thus complement the domestic financial sector in instances where free market conditions may appear to be insufficient to achieve the desired public policy objectives. such an institution would normally be underpinned by certain privileges geared to optimise promotional activities and therefore one would need to ensure that the promotional operations of such a bank would not give rise to any distortions in competitive conditions in the market. more specifically, it would have to ensure that its activities will