, could be placed in the market. banks hoarded liquidity in order to be safe from unexpected outflows or the unknown extent of write - downs. because the usual market refinancing possibilities were blocked banks relied on highly rated collateral for their funding and the liquidity provided by the central bank. the spread between eonia and three - month euribor rose to the highest level ever at 70 bps and has remained high. unsecured trading in the money market beyond one week effectively ceased to exist. ii. central bank reaction function as liquidity retracted first from the credit markets, then money markets, intermediation vanishing, central banks had to move in : to restore orderly market conditions ; ensure the integrity of monetary transmission channels, and to ensure financial stability or prevent a systemic crisis. in view of the confidence crisis among market participants, due to uncertainty about financial individual exposures, the issues at stake were : 1 ) to have money market rates evolve close to the policy rates ; 2 ) to address the term structure problem to the extent that it was threatening the first issue ; 3 ) and thirdly to address the distributional problem of liquidity among market participants for reasons of financial stability. the somewhat more complex and elaborate toolbox of the eurosystem proved very valuable in this respect. - this applies to the instruments used to provide liquidity : the mro and ltro - this applies to minimum reserve features - this applies to the number of counterparties with direct access to central bank money - this applies finally to the range of eligible collateral let me say a word about each of these features of the eurosystem operational framework : 1. at moments of term structure difficulties and shortening of the liquidity constraints, it is of advantage to have both : one - week and three - month liquidity providing tenders conducted weekly and monthly. fine tuning operations and extraordinary additional tenders, according to standard procedures, allowed a commensurate response within a familiar context, rather than adding to prevailing uncertainty by introducing, in an emergency context, untested new facilities, instruments or procedures. 2. in monetary policy operations, the eurosystem grants direct access to liquidity to a large number of credit institutions. all euro - area institutions subject to minimum reserve requirements and which fulfil the relevant contractual or regulatory arrangements applied by their respective ncb, may access the standing facilities and / or participate in open market operations based on standard tenders. at the end of

august 07, 1 676 counterparties had access to the open market operations, 2 809 to the facility, and 2 141 to the marginal lending facility. 3. the combination of relatively high reserve requirements at 2 % and the monthly averaging principle allowed banks to dip into their reserves to meet their liquidity needs. this averaging principle, which grants the banks more flexibility in meeting their reserve requirements, is conducive to more orderly market conditions. since the start of emu in january 1999 the ecb has been providing its ( weekly ) refinancing to the euro area banking system based on the concept of a benchmark allotment. this benchmark allotment is defined by the ecb as the allotment amount which allows counterparties to smoothly fulfil their reserve requirements until the end of the day before the settlement of the next mro, when taking into account the aggregate liquidity need of the banking system. 4. the eurosystem accepts a wide range of collateral to underlie its operations, including marketable and non - marketable assets. the eurosystem has put in place a single framework for eligible collateral, which covers marketable and non - marketable assets that fulfil euro area - wide eligibility criteria. as far as marketable assets are concerned, there are four liquidity categories : the first and best category is made up by central government debt instruments, the second by jumbo covered bonds, agency, and local or regional government debt instruments, the third by covered and uncovered bank bonds and the fourth by asset backed securities. there are two types of non - marketable assets that are accepted as collateral : credit claims and non - marketable retail mortgage - backed debt instruments. although different levels of haircuts are applied to the different categories, one might say that the eurosystem also allows banks to use collateral easily where either the interbank repo markets are less liquid ( such as in category 3 + 4 ) or where there is even no interbank repo market at all ( such as for non - marketable assets ). banks have the choice to use more or less liquid assets as collateral, a facility which constitutes a big advantage in critical liquidity conditions such as those currently experienced by market participants. some recent figures : the available eligible marketable collateral amounts to eur 9 trillion. while the amount submitted to the eurosystem nearly reached 11 % of all eligible collateral by 31 august 2007 ( nearly eur 1 trillion