##bank money markets. over time, and once they have been fully implemented, these measures should improve the functioning of the term money markets and the access of banks to wholesale funding markets. this should lower the cost of bank funding and facilitate the provision of credit to the economy. that said, in order to revive the process of efficient financial intermediation, financial institutions will need to play their part in the adjustment process by taking advantage of these measures to effectively recapitalise and repair their balance sheets. iv. overall assessment let me conclude with our overall assessment of financial stability at the current juncture : the euro area financial system has undergone a further significant test of its shock - absorbing capacity since the finalisation of the june 2008 financial stability review. at the same time, there are a number of risks and vulnerabilities lying ahead with which the financial system may have to cope, notably the possibility of : • a further deterioration in the us and the euro area housing markets and the impact this may have on banks ’ loan quality and the value of securities backed by mortgage - related assets ; • a deeper and more prolonged slowdown in both the global and the euro area economy than currently expected that could cause a sharper and broader deterioration in borrowers ’ ability to service their debt ; • a more pronounced de - leveraging by banks, due to persistently high funding costs and concerns about the adequacy of capital buffers, which could negatively affect the flow of credit extended to the broader economy ; and • an increase in financial market volatility caused by a further unwinding of positions by hedge funds. all in all, given the risks that lie ahead, banks will need to be especially watchful in ensuring that they have adequate capital and liquidity buffers in place to cushion the challenges ahead. thank you very much for your attention. i am now at your disposal for questions.

the reason is that it is precisely during a crisis that the fiscal authorities try to push the central bank towards solving the fiscal problem through the inflation tax. however, the central bank is protected from this pressure by its statutes and the rules it adopts for the conduct of monetary policy. in the case of the ecb, the rules specify that it can lend only to sound institutions and against appropriate collateral. the appropriateness of the collateral depends in particular on whether the country under stress follows rigorously the imf / eu adjustment programme and is on track to regain market access. the soundness of institutions, which is assessed primarily by supervisors, is also a key principle. it has ensured that all adjustment programmes envisaged sufficient funds for the recapitalization of the banking system. these rules and principles apply to the central bank but are ultimately there to protect taxpayers and to prevent monetary policy from being misused to bail out insolvent governments. they constrain the actions of the central bank, but also give it sufficient flexibility to react in the event of a crisis. there is no doubt that these rules cause some frustration to those who would instead like to shift the responsibility for solving the crisis entirely to the central bank, even if the crisis is of fiscal origin. it is quite paradoxical that the very same people who criticise the ecb for having taken too many risks during the financial crisis are also those who criticise it for opposing any form of debt restructuring. this same group even suggests that the ecb should stand ready to accept, after a debt restructuring, the signature of a default - rated government as collateral. how are such contradictions possible? in my view they are only possible when the analysis is partial or the rationale is unclear. let me give a couple of examples. one reason for debt restructuring – which is often made by some theoretical economists – is that it helps financial markets to function better and it eliminates moral hazard. the problem with this view is that it totally omits the broader impact on the markets. trying to eliminate moral hazard in the middle of a systemic crisis is like shooting yourself in the foot. think about it : did the failure of lehman brothers make markets work better, or worse? did it reduce moral hazard? another reason for private sector involvement ( psi ) is to minimise the taxpayer ’ s contribution and to penalise bad investments. this reason is even less economically sound. lehman brothers ’ failure proved that if psi is applied in the wrong way