the only way for asset prices was upward. abundant liquidity and financial complexity provided respectively the driving force and the landscape underlying both the process of financial leveraging and its eventual unwinding. the weaknesses unearthed include, as a third and essential element, financial players ’ incentive structures. strictly speaking the purpose of the financial system is to write, manage and trade claims on future cash flows for the rest of the economy, a purpose that increasingly fell victim to a game for fees, short - term profits, and arbitraging regulation. indeed, most remarkably ex - post, the “ shadow banking sector ” did not have to set aside capital against the risk of things going wrong, as eventually they did when euphoria turned into sobriety. the mechanics of the unwinding process are by now also well understood. following one substantial shock to a single market segment ( the us sub - prime related credit ), the process of adjusting risk positions in the financial sector was hindered by a – in some cases complete – breakdown in the price discovery process across instruments owing to the lack of understanding of the distribution and magnitude of risks underlying the various financial instruments. in turn, the unprecedented system - wide dry - up of liquidity driven by reductions in position - taking by major financial intermediaries fed back into the overall uncertainty, thus escalating measured risk and frustrating the very same efforts towards risk reduction. indeed, the magnifying glass turned against those with business models most heavily relying on it, who found themselves confounded by the sheer magnitude and speed of the confidence implosion. that this set of institutions extends well beyond the banking sector, is yet another reminder of the magnitude of the challenge that lies ahead. the response of the central banking community to the liquidity problems the eurosystem makes a clear distinction between setting the monetary policy stance to maintain price stability and its liquidity decisions taken in the course of implementing this stance. this distinction serves to isolate signals of the monetary policy stance from the noise introduced by liquidity movements and volatility in very short term rates. since the onset of financial tensions in august 2007, the actions of the ecb have remained in line with this principle. in both “ normal ” and “ turbulent ” times, the primary aim of the eurosystem ’ s open market operations is to keep the overnight rate as close as possible to the minimum bid rate. during the recent period of turbulences some institutions, even if solvent, had difficulties in accessing

be attributed to two factors : disagreement across point forecasts and uncertainty around individual point forecasts. 6 uncertainty, which is calculated by first taking the standard deviation of each dealer ’ s distribution and then averaging these individual uncertainties, provides a sense of how confident respondents are about their individual point forecasts. based on this calculation, the uncertainty around dealers ’ expectations for the size of the soma portfolio at the end of 2014 is large. in fact, at around $ 500 billion it is almost as large as the entire size of the large - scale asset purchase program announced in november 2010 or the mep announced in september 2011. moreover, this uncertainty has not changed significantly since the start of the purchases in september 2012. the dispersion around individual point forecasts likely reflects uncertainty about both how the economy will evolve and how the fomc will adjust its purchases in response to changes in the economic outlook or changes in its understanding of the efficacy and costs of the policy. disagreement among dealers about the likely amount of purchases is measured as the standard deviation across their average forecasts for the size of the soma portfolio at the end of 2014. in the january survey, disagreement was about $ 250 billion, significantly lower than its level in october. investors ’ disagreement and uncertainty about the overall stance of monetary policy will reflect their views on the future evolution of both the federal funds rate and the soma see, for example, question 8 in the january 2013 survey of primary dealers. the measures of forecast uncertainty and disagreement discussed here are based on rich and tracy and wallis ( 2004, 2005 ). bis central bankers ’ speeches portfolio. one way to get a sense of the overall level of policy uncertainty is to convert the soma portfolio into “ fed funds equivalents ”. 7 with this translation, it is possible to estimate the hypothetical level of the federal funds rate that would provide a similar amount of monetary policy accommodation as both the actual level of the federal funds rate and the size of the soma portfolio. figure 2 shows the disagreement and uncertainty around this measure of policy uncertainty 12 months in the future. disagreement about current policy is quite low relative to the past few years, which likely reflects the effect of forward guidance on expectations about the federal funds rate and the relatively low disagreement about the size of the portfolio that i mentioned earlier. uncertainty, on the other hand, is relatively high and larger than the amount of disagreement. since there is very little uncertainty about the level of the federal funds rate one year from now,