particular mechanisms that unleashed the turbulences, and the gradual amplification that characterised it. it is by now well recognised that the first factor – and the driving force behind the substantial rise in financial leverage – was a significant excess of savings over investment in the global economy which, in time, drove an increasingly aggressive “ hunt for yield ”. the ensuing surge of asset prices provided a spiralling, and in perspective temporary, environment of steadily rising financial market liquidity. as has been argued by many in the international community, the period just preceding the current financial turbulences shares the characteristics of previous historical episodes, whereby there is a sudden and widespread recognition and recoil from underlying credits whose quality was in fact worsening for years. the various amplifiers that characterise modern financial systems which contributed to driving leverage up – the most notable being associated with the originate - to - distribute model of finance – also magnified the uncertainty about the extent of the imminent downturn, driving a massive run on riskier assets. no account of the vulnerabilities that resulted in this period of turbulences is complete without identifying the ubiquity of interlinkages both within and across financial systems as a second important element. i share the view that modern financial intermediation has proven that it has the potential to effectively spread risk and it has undoubtedly promoted economic efficiency and made capital available to productive sectors that would have otherwise not had access to any. alas, the evolution of the financial system not only facilitated an expansion of the array of financial instruments available to investors, it also seeded the fragility that later materialised in the unprecedented speed and reach of contagion during the unwinding of leverage. testimony of this evolution, even when compared to just a decade ago, are the speed and degree of complexity of today ’ s capital flows ; the relative variety, obscurity and interrelationship of many classes of financial instruments ; and the intertwined relationship of a growing variety of financial institutions. the complexity in the “ originate - to - distribute ” financial intermediation model clearly placed a heavy burden not only on the ability of investors to assess the risks they were taking, but more importantly also on the risk management procedures of large financial intermediaries. the “ shadow banking system ” that rapidly emerged as an excrescence of the formal banking sector – unlike its better understood and regulated sibling – rested on a poorly understood system of credence ( provided by rating agencies ) and the false perception that

market well during the ongoing financial market turbulence. the collateral framework, which has been in place since the start of the emu, has proven robust, in particular during the current financial market turbulences. due to this built - in flexibility and robustness, the eurosystem could effectively step in when intermediation in interbank markets deteriorated. moreover, the share of deposited collateral not used to cover credit from monetary policy operations has remained large on an aggregate level, suggesting that availability of collateral has not been a constraint on the euroystem ’ s counterparties in the wake of the turbulences. it is important to recall that, as the turbulences went on, central banks strengthened their cooperation, first through enhanced information exchange and collective monitoring of market developments and later on by coordinated steps to provide liquidity. as an example of joint actions between central banks during the turbulences, in december 2007 the ecb agreed with the us federal reserve to grant loans in dollars with a maturity of one month to euro area banks, against collateral eligible for eurosystem credit operations, in connection with the federal reserve new us dollar term auction facility ( taf ). the eurosystem loans were financed through a currency arrangement ( swap line ) with the federal reserve, and granted at a fixed rate equal to the marginal rate of the simultaneous federal reserve tenders. the first two operations, for an amount of usd 10 billion each, were settled in december 2007 and renewed in january 2008. similar operations were also carried out by the swiss national bank. these liquidity - providing operations did not have a direct effect on euro liquidity conditions, but were conducted to address the funding of euro area banks in us dollars and aimed at improving global funding conditions. since these coordinated actions, the g - 10 central banks have continued to work closely together and to consult regularly on liquidity pressures in funding markets. owing to continued pressures observed in the money market, the ecb, as well as the swiss national bank, resumed in march 2008 the us dollar liquidity providing operations in connection with the federal reserve term auction facility, every second week for as long as needed, and for an increased amount of usd 15 billion each. this amount was further increased to usd 25 billion each, on 2 may 2008. it is important to stress that the action in connection with the taf marked, to my knowledge, the first systematic and multilateral central bank co - operation in the money market field, a market which is central to the implementation