federal reserve system and the ecb, for reassurance. one of the sources of uncertainty for insurers ( and others, too ) is interest rates. in particular, quantitative easing, or qe, which affected the entire yield curve. aren ’ t interest rates gradually eluding market participants ’ expectations, leading them to wonder what sort of market equilibrium will exist at these rates? what constraints could affect the ecb ’ s decision - making? isn ’ t this a strong driver of cycles and uncertainty? market participants can see the benefits of central banks managing the yield curve, because it fosters economic activity and stability. it is true that part of how interest rates are set is eluding market mechanisms. nevertheless, we have to put this discussion into perspective. on the one hand, it ’ s nothing new : by design, monetary policy always has an impact on interest rates. on the other hand, since the start of qe and in all market segments, including sovereign debt as well as corporate debt, the ecb has always taken care not to suppress the price formation mechanism. as an example, this is one of the reasons why the ecb does not purchase more than 33 % of a sovereign issuance. central banks now have a strong influence on the entire yield curve, over a very long horizon. the counterpart to this is to be transparent towards the market and to provide visibility and predictability concerning how we are going to act. that ’ s the purpose of our forward guidance, 1 / 5 bis central bankers'speeches which clarifies our reaction function. forward guidance is not an unconditional commitment about what we are going to do. that ’ s not something we would be able to do and we wouldn ’ t be credible, as we necessarily react to new information flows we receive. it does, however, provide clarity about how our monetary policy incorporates these information flows. if we explain this reaction function to the markets clearly enough, then they can incorporate it into the price formation mechanisms. and we feel that this has worked rather well. the markets find the way we conduct forward guidance useful. today, particularly in the united states, there is a debate about whether forward guidance should be abolished and replaced with completely opportunistic policy that could be fairly arbitrary. this discussion makes sense when monetary policy normalisation is at a more advanced stage. after all, our monetary policy before the crisis did not include forward guidance and that seemed perfectly normal to everyone. once monetary policy

. there was no guarantee that the liquidity provided would all end up in the real economy but because we acted, we avoided an even larger credit crunch and a collapse of parts of the banking system. we designed our instruments so as to provide long - term credit to banks and give them reassurance that they could satisfy their liquidity needs over an extended period. this gave banks a clear funding perspective and put them in a position to provide credit lines to the real economy, in line with their business assessment of credit risks. ecb policy responses over the past 12 months by mid - 2012, the crisis took a new turn. we saw the risk of a complete collapse of all credit markets. risks to fiscal sustainability and growing market distrust in some euro area countries started to spill over into their respective banking sectors. close links between sovereigns and banks threatened the stability of the entire banking sector in some countries. while impairments to the transmission of monetary policy eased in some countries, they became entrenched and more acute in others. fractures in transmission – a new phenomenon since the start of emu – appeared along national borders. investors suddenly lost confidence that the euro area could survive in its current composition. in fact, the prospect that claims on certain governments and private companies in certain countries could not be discharged in euros had become a possibility. international investors started divesting securities issued by governments of non - core economies and of private institutions domiciled in those countries. bis central bankers ’ speeches germany became the destination of “ safe - haven ” flows. capital, deposits and central bank liquidity were leaving the periphery and concentrating in the core. market interest rates in germany fell as bond prices were driven upwards, and at some point, german bond market rates were lower than ecb refinancing rates! at the same time, the loss of liquidity and bank funding capacity in the periphery produced a tightening of credit conditions in those economies. interest rates for bank customers, firms and households were dropping in the core and rising in the periphery. eventually, the fragmentation of financial conditions became so severe that we were effectively losing the steering ability of our monetary policy for the euro area as a whole. in this environment, we once again had to act. as our main instrument, we announced the programme of outright monetary transactions ( omt ) in secondary government bond markets. the aim is to eliminate redenomination risk, namely uncertainty about the survival of the euro. since omt was announced almost one year