excess of 20 per cent of gdp, a total of almost us $ 8 trillion. more recently the us fed initiated its maturity extension programme ( more popularly referred to as operation twist ), whereby the fed sold short term treasury securities and bought longer term securities, in an effort to bring down long term interest rates. the aim was to give a boost to the ailing domestic housing market, as mortgages are often priced off long - term rates in the us, as well as to the corporate bond market. the long term refinancing operations ( ltro ) of the ecb, through which euro1, 3 trillion of liquidity was injected into the european banking system that was in danger of seizing up, is another example of such measures. the objective was to keep the banking and interbank system operating, and to cushion the real economy from banking sector stress. some of these activities were intended to provide additional stimulus to economic growth, but some also had a strong financial stability element. this leads us to the area in which central bank mandates have changed most significantly : that is, responsibility for maintaining financial stability. prior to the crisis, financial stability was generally an implied mandate for central banks. the fall - out from the crisis has led to an increasing number of central banks being given explicit financial stability macroprudential mandates. this is distinct from microprudential supervision and regulation of the banking system where the focus of the regulator is limited to individual banking institutions and the banking system. a broader macroprudential focus would look at the build - up of financial imbalances and the risks posed by the positions taken by leveraged financial institutions to the broader financial sector and to the economy in general. for example, in a low interest rate environment and high rates of growth of credit extension by banks, these funds can be used to finance purchases of assets and result in the build - up of bubbles in the housing or equity markets. the issue of how central banks should react to asset prices was the subject of much debate prior to the crisis. the dominant view at the time was that financial imbalances and crises should not occur in a low inflation environment, and where they did, central banks were not in a position to recognise or predict them. nor did they have appropriate tools to prick incipient bis central bankers ’ speeches bubbles. interest rates would had to have been raised to unacceptably high levels in a low inflation environment in order to deal with the bubbles that had emerged.

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