liquidity from one week to six months ’ duration at our main policy interest rate. another non - standard measure has been the considerable expansion of the list of eligible assets that banks can pledge as collateral. this has eased banks ’ balance sheet constraints, and encouraged them to extend new credit or continue rolling over maturing loans to firms. as the inflationary pressures that we were still observing until last summer, receded rapidly, we have also been able to grant unlimited access to central bank credit at a sharply decreasing cost. our key policy rate has been reduced by 275 basis points since the crisis worsened in the autumn. at present, the eurosystem is providing unlimited refinancing at a rate of 1. 5 %. and sound and creditworthy banks can secure overnight credit at an interest rate which is in between the main policy rate, namely 1. 5 %, and the deposit rate, namely 0. 5 %. at present the overnight rate is at a level unseen in the entire post - war history of european monetary affairs. being able to borrow at such low costs, banks can grant credit to other banks and to their non - bank customers at conditions that are very accommodative by historical and international standards. thanks, in particular, to smaller spreads between the interbank money market rates and the ois rates, the 6 - month and 12 - month euribor rates are lower than the corresponding libor rates for contracts denominated in us dollars. enhanced credit support has also meant a considerable expansion of the eurosystem ’ s balance sheet. the size of our balance sheet is currently around €600 billion above its precrisis volume. this measures the size of the additional intermediation we are undertaking – substituting for the market. the size of our balance sheet represents today around 16 % of euro area gdp compared with 10 % before the crisis ; the federal reserve system ’ s balance sheet is around 13 % of us gdp. the additional intermediation has prevented a seizing up of the whole credit market. short - term interest rates on loans to households and businesses have declined. the pass - through of the ecb interest rates to the economy has proceeded in accordance with past regularities. how does this policy course of enhanced credit support compare with the approaches of some other central banks grappling with tumult in financial markets? since mid - september 2008 the federal reserve has pursued a policy of direct “ credit easing ”. these measures are targeted at

economic risks, but more and more to create and propagate risks on its own. in the past two decades, financial innovation and liberalisation made important contributions to the overall productivity of our economies. but as the demand for finance increased throughout the 1990s, intermediaries had growing incentives to develop innovative funding techniques. the securitisation of assets, for example – the transformation of bilateral loans into tradable credit instruments – had tremendous potential to facilitate the diversification and efficient management of risk. as such, it was a powerful and useful tool. but securitisation also meant that banks and non - banks were able to sell credit – or place it off - balance sheet – immediately after it had been extended. this alchemy enabled lenders to expand the volume of their operations and conserve on capital. fatally, the same mechanism weakened lenders ’ incentives for prudent screening and steady monitoring. the resulting declines in underwriting standards and lending oversight was one of the main sources of the excessive credit boom. the credit boom had three multipliers. first, ill - designed compensation schemes for loan managers reinforced the shortening of lenders ’ horizons. in the eyes of many loan managers, the short - run gains from an expansion of credit obscured the need for any consideration of the potential losses that their institution could incur over the longer term. second, the complex structure of securitised products made it difficult for the ultimate holders to assess the quality of the underlying investment. this perpetuated the boom, as it took time for investors to discover and reassess the underlying risks. third, international imbalances and their potential to encourage liquidity creation on a global scale acted as the macroeconomic – and perhaps most powerful – multiplier. a chronic shortage of savings in some of the world ’ s advanced economies was funded by an excess of savings in other parts of the world. these global macroeconomic imbalances contributed to the creation of international liquidity and therefore further fuelled credit and debt accumulation. in the period before the start of the crisis, the oil and commodity price shock augmented the savings glut even further. the policy response the interplay of the forces that i have described went into reverse – suddenly, although not unexpectedly – sometime in the middle of 2007. liquidity dried up, and the entire financial sector was put under severe strain. the collapse of a major and highly interconnected financial player in mid - september of last year then turned