liquid of all markets, has been protractedly “ frozen ”. this has happened primarily due to uncertainties as to the size and locations of losses created by the opaque transfer of credit risk brought about by complex securitisation mechanisms. such uncertainty has heightened counterparty credit risk concerns, discouraging banks from lending to each other. moreover, it has brought to the fore the increased interaction between market liquidity and funding liquidity of individual institutions. indeed, the trend among large global banks has been towards greater reliance on wholesale market sources of funding. instead of relying on retail deposits, some banks are increasingly dependent on interbank borrowing, short and long - term debt, and, as an ultimate line of defence, on the sale of marketable securities. this has made access to funding liquidity more dependent on market conditions. in addition, the range of systemically relevant institutions has become broader. indeed, nondeposit taking investment banks and primary dealers play a systemic role in their crucial broker - dealer function. they perform a key role in maintaining market liquidity in a broad range of unsecured and secured markets. if they face funding liquidity constraints, market liquidity will be widely affected, with potential negative repercussions for the banking sector as a whole. this environment poses challenges for central banks, as addressing funding liquidity shortages may require supporting market liquidity. clearly, the nature of the turbulence matters : concerns for market liquidity itself could in principle be addressed by central bank actions, whereas central bank liquidity operations would be ill positioned to tackle individual counterparty solvency concerns. 1 along these lines, let me explain how central banks have responded to the challenges arising from market turmoil using a combination of operational measures and increased international co - operation. see “ central bank operations in response to the financial turbulences ”, cgfs papers, no 31, july 2008. 4. how central banks responded clearly, the responses have varied across central banks, but in general terms, they have tried to address the liquidity squeeze in similar ways and have concentrated on four fronts : first, central banks have acted to keep short - term money market rates in line with their policy rates ( or targets ) through more active reserve management, thereby flexibly responding to shifts in the demand for reserves. second, central banks have sought to ease pressures in broader funding markets through a combination of measures, such as an increased supply of longer - term funds, the expansion of collateral accepted in lending operations

the implementation of a central bank ’ s monetary policy. i believe that all of these actions have proved to be effective in easing the tensions at the short - term end of the global money markets and in maintaining control of short - term interest rates in the euro area. i am sure that global money and funding markets will continue to benefit from our very close cooperation. we will carry on working together closely and are prepared to take appropriate steps as needed to address funding pressures. 5. what central banks have learned : two lessons among others going forward, what preliminary lessons can we draw as central bankers from the ongoing turbulence? 5. 1 lessons for the implementation of monetary policy in the past, common central bank wisdom was to say that there is no unique way to implement monetary policy. in borio ’ s words ( 2001 ) : “ just as there are a hundred ways to skin a cat, so there are a hundred ways to implement monetary policy ”. 2 nonetheless, the currently prolonged dislocation of interbank markets and, more broadly, asset markets has shown that there are certain key operational features that facilitate the implementation of monetary policy in such conditions. in order to distribute reserves effectively when the interbank market is impaired, central banks should be capable of borio, c. ( 2001 ), “ a hundred ways to skin a cat : comparing monetary policy operating procedures in the united states, japan and the euro area ”, bis papers no. 9. providing access to collateralised lending operations to a wide set of counterparties against a broad range of collateral and on a large scale. whether those features should become part of the regular operational framework or are introduced on demand in distressed market conditions, is ultimately the choice of each individual central bank. as regards the eurosystem, we believe that our flexible operational framework, including the collateral component, has served us well until now, and has helped us to weather a number of tests, including the latest of a prolonged liquidity squeeze in a wide range of unsecured and secured markets. however, this does not mean that there is no scope for refinement and further enhancement. one recent example is the fine - tuning of our risk control framework in the context of our latest 2008 review of the adequacy of the risk control measures. these reviews are conducted on bi - annual basis to meet the statutory obligation of the eurosystem to adjust the collateral and risk control framework over time so as to ensure that it remains adequately protected against financial risks across