benoit cœure : embarking on public sector asset purchases speech by mr benoit cœure, member of the executive board of the european central bank, at the second international conference on sovereign bond markets, frankfurt am main, 10 march 2015. * * * i would like to thank marie hoerova, peter hoffmann and andreas moser for their contribution to the speech. i remain solely responsible for the opinions expressed herein. summary on 9 march the eurosystem launched its public sector purchase programme ( pspp ). on that day the ecb and the national central banks of the euro area purchased €3. 2 billon of public sector bonds, putting the programme on track to reach a total of €60 billion in march. monetary policy is implemented in normal times in money markets. stepping into bond markets creates challenges and might have unintended consequences. one key principle underlying the implementation of the pspp is the minimisation of unintended consequences, which can be ensured by obeying the concept of market neutrality. we do want to affect market prices but we will not suppress the price discovery mechanism. the eurosystem will ensure a high degree of transparency around its interventions and will closely monitor their impact on market liquidity and collateral availability. some market reports have suggested that we may not be able to buy the intended amounts of government bonds. while the effective supply of eligible securities is undoubtedly lower than the total amount outstanding, it will still be substantially higher than the amounts we intend to purchase. if this is the case, there will be a price at which we can buy the quantities needed to meet our monthly targets. in other words, we may face a scarcity of bonds, but we won ’ t face a shortage. and there are good reasons to expect that scarcity will materialise first and foremost in those market segments with a higher duration, potentially helping to maximise the economic impact of our operations. * * * ladies and gentlemen, it is a great pleasure for me to speak to you tonight. as you all know, the eurosystem launched its public sector purchase programme ( pspp ) yesterday, 9 march. on that day the ecb and the national central banks of the euro area purchased €3. 2 billon of public sector bonds, putting the programme on track to reach a total of €60 billion of public and private sector bonds in march, as intended by the governing council. the pspp is the latest of a suite of asset purchase programmes (

/ bust cycles : a role for global liquidity ”, ecb wp series no 1039, march ; borio and drehmann ( 2009 ), “ assessing the risk of banking crises – revisited “, bis quarterly review, march ; ecb financial stability review, june 2009, special feature d “ estimating probabilities of hedge fund liquidation ”. risk assessment risk assessment relates to the evaluation of the relevance and potential severity of each risk identified as material in the surveillance phase. it should therefore include a quantitative evaluation of the likelihood that the potential risk scenarios could actually materialise, as well as an evaluation of the ability of the financial system to absorb the shocks ( for example, through existing capital buffers or through the potential to increase buffers in the future through profit retention ). it should also include cost estimates in terms of the failure of institutions, costs deriving from the malfunctioning of financial markets or impairment of the real economy. the product of these factors forms the basis for the ranking of risks. quantitative methods and analytical tools ( for example, macro - stress testing models ) should support, together with expert judgement, the prioritising or ranking of these risks. the models will help in the conduct of quantitative impact assessments on the financial sector as well as in the assessment of the potential costs for the real economy, and thereby offer information about the relevance and severity of the risks detected in the surveillance phase. macro - stress testing models have become the workhorse of macro - prudential stability analysis in the last decade, notably including quantitative impact studies for specific scenarios. their main purpose is to assess the resilience of the banking and financial systems against extreme but still plausible events. one problem with these models in the past was that even for large shocks they generated hardly any bank failures. this can probably be improved by using appropriate data, more granular than previously available, and by capturing better and a larger number of adverse feedback loops that can play a role in amplifying the transmission of instability in the financial system. these feedback loops could include contagion effects across banks, market liquidity and funding liquidity problems. 14 another difficulty for these models is whether they should be extended to also capture feedbacks from real economy outcomes to financial stability variables. the assessment task is currently much less developed than the surveillance one. this is not only because it involves considerable analytical sophistication, but also and mainly because there are significant gaps in the information on the financial