official liquidity is, however, also associated with the launch of non - standard monetary operations in advanced economies. these policies seek to stabilise the domestic economy and have been criticised by emerging markets ’ central banks. those of you who attended the g20 discussions in 2011 will remember the animated exchanges on this issue. if anything, this confirmed that, for any meaningful discussion of international monetary reform to take place, one needs to better understand the driving factors of global liquidity and its impact on domestic policies. the emerging market participants argue though that unconventional measures taken in developed economies have created excessive global liquidity and that this, in turn, was a key factor behind the massive increase of capital flows into their economies between 2009 and mid - 2011. this surge was then widely blamed for the appreciation pressures exerted on their currencies, contributing to a build - up of financial imbalances and asset price bubbles, high credit growth and risks of overheating in those markets. however, an important question is whether idiosyncratic “ pull factors ” have influenced the transmission process of official liquidity expansion. indeed, recent studies argue that there is a significant degree of heterogeneity in the way different emerging economies were affected by us monetary policy5. pull factors, such as country - specific fundamentals and institutional characteristics, are just as important as “ push factors ” coming from developed economies. for instance, countries with fundamentally undervalued exchange rates are of course prone to surges in capital inflows. conclusions reinterpreting recent crises through the lens of global liquidity cycles cannot hide the fact that the crises themselves have their origins in more fundamental “ fault lines ”, to paraphrase fratzscher, lo duca and straub : “ quantitative easing, portfolio choice and international capital flows ”, ecb mimeo. bis central bankers ’ speeches rajan. 6 liquidity fluctuation and cycles simply exacerbate these underlying weaknesses. for instance, in the asian crisis, regulation and supervision of the banking system was weak in many instances, as was corporate governance in general. similarly, the recent financial crisis revealed gaps in regulation and supervision, especially in segments such as the shadow banking system, as well as the lack of a macro - prudential approach to financial supervision. finally, the debt crisis in the euro area has its roots in insufficient fiscal discipline and, even more importantly, in divergent productivity trends among the member states. such diver

banks and have recapitalised a number of financial institutions. the latest figures ( end - january 2009 ) show that the stock of guaranteed bank bonds globally will soon reach a level of €300 billion, of which one quarter concerns euro area banks. these are substantial figures, though we should bear in mind that it takes some time for the measures to be completely implemented and to show their full effects. remarks by us treasury secretary timothy geithner, “ introducing the financial stability plan ”, 10 february 2009. the tensions in the money markets reflect the reluctance of banks to lend to each other because of persisting concerns about the creditworthiness of their counterparts and uncertainty about their own liquidity needs. and the tighter credit standards and conditions reflect, inter alia, banks ’ concerns about asset quality and credit risk. additional measures to support the asset side of banks ’ balance sheets it may be necessary, however, in order to safeguard banking sector stability and restore an adequate flow of credit to the economy,, that these measures, which were aimed at supporting the liability side of banks ’ balance sheets be complemented in certain cases by additional measures designed to support the asset side. various approaches have been considered, ranging notably from ( i ) asset removal schemes involving the removal of the “ problem ” assets from the balance sheets, through direct government purchases or by transferring them to “ bad banks ” or asset management vehicles ; to ( ii ) asset insurance schemes that limit the valuation losses of impaired assets by invoking a government guarantee while keeping them on the balance sheets of institutions concerned, and ( iii ) including various hybrid schemes that combine features of asset insurance and asset removal. the appropriate design and the effective implementation of asset support measures require addressing a number of complex issues. past experience and the assessment of alternative schemes on the basis of a number of criteria, suggest that there is no single approach that would be uniformly superior independently of the circumstances of the financial institutions concerned. rather, the measures would need to be designed on a case - by - case basis and in a pragmatic manner. in fact, hybrid schemes have often been chosen as the most appropriate. the chosen scheme should aim to achieve a number of objectives : ( i ) it should safeguard financial stability and effectively restore the flow of credit to the private sector ; ( ii ) it should also ensure that a level playing - field in the eu financial market is maintained to the maximum extent possible ; and ( iii ) it should contain the impact on public finances and