in october 2012. the sovereign debt crisis also revealed strong negative feedback loops between banks and sovereigns, irrespective of whether the crisis originated with the sovereign or the banks, as well as contagion among national financial markets. in response to these developments, in 2012, european leaders initiated the creation of a banking union – which is a complementary and integral part of a genuine economic and financial union. its three pillars are : the single supervisory mechanism, the single resolution mechanism and the still - to - be completed common deposit guarantee system. apart from the elements of the banking union, a number of important regulatory initiatives have been taken, covering almost all aspects of financial sector and activities ( namely the bank recovery and resolution directive – brrd, capital requirements regulation and directive – crr / crd iv for the banking sector, solvency ii for insurance, european market infrastructure regulation – emir for financial markets and infrastructure and so on ). turning to monetary policy initiatives, the ecb has been addressing the severe and persistent disinflationary forces in the euro area economy with a broad set of measures. initially, it moved to refinancing operations at a fixed rate and with full allotment. it also extended the time horizon of refinancing operations, providing for 3 - year maturities instead of the usual 3 - month. more recently, with the so - called targeted long - term refinancing operations ( tltros ), it seeks to incentivize banks to on - lend to the private sector by providing finance for up to 4 years. finally there are the various asset purchase programmes where the eurosystem purchases marketable assets including public sector / government bonds, corporate bonds, abss, uncovered bank bonds, etc. these non - standard measures are being implemented to meet a variety of goals. first, to support financial markets which are malfunctioning. second, to provide liquidity to banks for longer periods. it should be recalled that in the wake of the international financial crisis, the interbank market dried up completely as counterparty risk rose ; to this day, it remains fragile. third, to kick - start lending to the real economy. ultimately, of course, the goal is to prevent deflation and raise inflation in the euro area to target. to a great extent, these measures have helped to improve financial conditions in the euro area. work done at the bank of greece shows that financial conditions have responded positively to the non - standard

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