premia. these rates, in turn, affect the costs of funding for households, for firms, and for governments. the resulting financing conditions affect economic activity and, in the end, prices. the functioning of the market for government bonds is central to the transmission of the ecb ’ s policy rates. this is because of several channels. via the price channel, interest rates on government bonds influence financing conditions within the economy. for example, they are often used as a reference rate when a bank prices a loan for a customer, or when a company borrows money by issuing a bond. sovereign financing conditions, under normally functioning bond markets, often provide a floor for the funding conditions of the private sector. interest rates on government bonds always include add - ons to compensate for liquidity risk and credit risk. but these risk premia should not become so large that they dominate the signal from the key policy rates to a point where it is no longer distinguishable and does not reach the real economy. this can happen when markets no longer function properly. closely related is the liquidity channel, which comes into play at the start of the transmission mechanism, influencing short - term interest rates beyond the conditions set by policy rates. government bonds are often used as collateral for banks ’ refinancing operations. in fact, government bonds are the primary collateral used in the secured interbank market. if government bond markets are disrupted, this hampers the functioning of the interbank market and reduces liquidity in this market. the consequences are increased money market rates due to premia for liquidity risk. as a result, the capacity of banks to issue loans and refinance the real economy suffers. a third channel, the balance sheet channel, is indirect : lower government bond prices, which correspond to higher bond yields, imply valuation losses in the assets held by the financial and non - financial sectors. for banks, the lower capital base may mean that they can supply fewer loans to the economy. for borrowers, their creditworthiness is reduced, and this affects their capacity to borrow. because of these channels, severe tensions in the bond market hamper the monetary policy transmission mechanism. the relation between our key interest rates and the rates applicable in the real economy gets out of order, and our main tool for influencing refinancing conditions in the real economy does not work the way it should. this is the situation that threatened us at the beginning of this month, so we saw the need to act quickly

jean - claude trichet : in memory of wim duisenberg speech by mr jean - claude trichet, president of the european central bank, on the occasion of the memorial service for mr wim duisenberg, amsterdam, 6 august 2005. * * * it is with great sadness and emotion that we all are here in the concertgebouw after the terrible loss of wim duisenberg, our first president and our dear friend. the french writer chateaubriand said : “ in my eyes, nobody is going down in the grave ( … ). death, in touching us, does not defeat us ; it only makes us invisible ”. wim is, and will for ever continue to be, present with us, in our heart and soul, with each and every one of us, and with our dear european central bank. he will be with us as a great central banker, a great first president of the european central bank, and a great european and friend. as regards the central banker, i would like to say very simply that, seen from my own perspective hen i was governor of the banque de france, the monetary policy of de nederlandsche bank was a role model for an institution and a currency wanting to inspire confidence, to improve credibility and to be state of the art in the handling of monetary policy in the uncharted european waters of that time. can i also say, gerrit, en passant, that the netherlands ’ economic strategy was also a role model for france ’ s economic strategy. and as a natural consequence, wim, as president of de nederlandsche bank, was a role model for fellow central bankers in europe. at the helm of the national central bank of the netherlands, as president of the committee of governors, as president of the bis, as a key member of the delors committee, as president of the european monetary institute, wim always displayed three unique qualities : • a fantastic capacity to synthesise the most complex situations ; • an exceptional gift for taking clear decisions in an expeditious way ; • and, finally, a strong determination to stick to the decision and stand firm in all circumstances, even when going through unexplored and difficult territory. each of these three qualities can be possessed independently of the others. what is absolutely exceptional in the case of wim is that he had all three of them simultaneously. as far as demanding circumstances and exceptional challenges are concerned, wim had