##ncies ) over periods of up to six months against an expanded range of eligible collateral. as a result, the size of the eurosystem ’ s balance sheet increased by 37 % during the fourth quarter of 2008 to a total of just over €2 trillion at the end of last year. this simultaneous easing of monetary policy and liquidity provision was fully consistent with the separation principle and the medium - term orientation of our strategy because of the new constellation of risks to price stability and financial stability. the unprecedented reduction in the ecb ’ s policy rates and the extraordinary increase of liquidity in the money market have been helping to mitigate the impact of the processes of disinflation and deleveraging on the real economy. consequently, they have been containing the possible emergence of “ endogenous ” risks to price and financial stability. at the same time, we continue to be confronted with exceptionally high uncertainty. the transmission mechanism of monetary policy has been affected by the strains in the money market and the ongoing adjustment of banks ’ balance sheets as well as by the increased risk aversion and reduced confidence of consumers, firms and investors. accordingly, we will continue to monitor closely all relevant developments. in early march, with the benefit of additional information and the ecb staff macroeconomic projections, we will assess the medium - term outlook for price stability and the associated potential risks. if inflationary pressures are diminishing and risks to price stability are assessed to be on the downside, a further easing of monetary policy may be appropriate in order to maintain inflation over the medium term at a level consistent with price stability, that is, below, but close to, 2 % and keep inflation expectations firmly anchored in line with this objective. an important issue which has been discussed extensively recently is whether the persisting strains in the money market and the significant tightening of credit conditions – and the possible emergence of supply constraints – in the bank credit market require further measures to be taken by central banks and governments in order to preserve financial stability and support the recovery of the economy. such measures have been taken or pledged in the past in the united states, the uk and the euro area. and yesterday, the us government announced an extensive new package of measures to “ stabilise and repair the financial system, and support the flow of credit necessary for recovery. ” 3 in the euro area, as i previously noted, the ecb has already taken non - standard measures in the past by changing aspects of its operational framework to

witnessed in the euro area as a whole. banking union is expected to increase the efficiency of financial intermediation by banks. in a bank - based economy like the euro area, this is particularly relevant, because enterprises rely to a much greater extent on banks for funding than e. g. firms in the u. s. a. according to a recent ecb report, loans on bank balance sheets account for close to 50 % of nonfinancial corporate debt in the euro area, but only 20 % in the u. s. a. therefore, strengthening the banking system is also essential for the real sectors of the economy, as more resilient banks are much more effective in performing their vital functions vis - a - vis the real economy. bis central bankers ’ speeches first of all, a credible and respected supervisor together with clear rules on bank resolution will reduce the uncertainty premiums that many european banks currently pay on their refinancing. as the ecb is set to be an exacting and respected supervisor, banks subjected to its supervision will enjoy high confidence, and this should result in a reduction of the uncertainty premiums. moreover, the principle of bail - in in case of bank failures and the uniform cascade of liability as it is laid out in the banking recovery and resolution directive ( brrd ) will help strengthen market discipline, although the ensuing effects on banks ’ funding costs will differ depending on the structure of their liabilities. in some cases, this may entail additional costs, as banking industry representatives have pointed out. for example, unsecured creditors that until now have almost always avoided a bail - in will demand higher risk premiums. at the same time, deposits can be expected to become less sticky, which again might exert upward pressure on funding costs ( which will definitely be the case with the annual contributions to the resolution fund, scheduled at eur 5. 5 billion ). but overall, banking union will result in a more stable refinancing structure of the banking sector and thus enable banks to better contribute to the economy. likewise, banking union will be a strong incentive for banks to improve their risk management. yet, while it is certainly one of the central aims of banking union to make banks ’ lending policies more risk sensitive, supervisors will also have to bear in mind the impact their actions have on the real economy. banks ’ willingness and ability to share the risks of the real sectors of the economy lies at the heart of the house bank principle that