risk, and this risk can disappear only if the commitment to avoid bank failure is credible. as i recalled in a recent speech, euro area countries have committed themselves solemnly, at the 12 october paris meeting, to ensuring adequate capitalisation of the banks. 21 the implementation of this commitment is lagging. furthermore, the meaning of “ adequate ” is subject to interpretation. supervisory authorities continue to use their regulatory measures, and rightly so. however, markets consider that this is not sufficient and would like to see banks being further capitalised, in light of the uncertainties about the economy and about their balance sheets. public authorities in all countries have made public money available for such recapitalisations and the ecb has defined a common pricing scheme, which would ensure a level playing - field. however, there is the problem of the “ first mover ”, and banks are afraid to apply for such recapitalisation because of the stigma that would be attached to it. there is thus a coordination failure that needs to be addressed by public authorities. ideally, all banks should be provided with extra capital, in a way that is not penalising but sufficient to reassure markets that indeed no bank will be allowed to fail, even if the economy deteriorates further. this type of recapitalisation, in excess of prudential requirements, would be a way to restore confidence in the financial system and tackle the macroeconomic problems that would emerge if banks start curtailing loans to the private sector as the preferred way to achieve the capital requirements that markets request. it is important that the european authorities in charge of competition and state aid realise that such capital injections are nor aimed at addressing individual banks ’ solvency but rather to promote macroeconomic and financial stability and should thus be assessed on criteria that are not only legalistic. any time that is spent to delay these recapitalisations results in delaying the stabilisation and recovery of financial markets. 6. conclusions i would like to conclude by re - iterating that a fast revival of the interbank market is of high importance for central banks. different public authorities have already taken a number of steps to increase confidence in banks and the banking sector. these types of measures may be enhanced and refined further, and will hopefully reduce credit risk, which is one of the major sources of reduced interbank market trading activity. the eurosystem has, since the start of the turmoil, adjusted its liquidity provision to banks and ensured that banks

of the collateral framework allows banks to post a larger variety of assets as collateral for eurosystem operations. this should, first, increase banks ’ availability of assets that can be used in the repo market, such as government securities. moreover, it would increase the value of all eligible collateral that banks have at their disposal and promote its use in interbank transactions, given that at any time it can be used to obtain liquidity from the central bank. second, the narrowing of the corridor between standing facility rates, as well as the introduction of fixed rate tenders, constitute an effective protection against liquidity risk. more specifically, these measures should reassure the markets that liquidity is available at a low opportunity cost, when needed. this should provide important help to banks at the current juncture, because it effectively guarantees access to liquidity for all banks in need, thereby eliminating liquidity risk. in that sense, if a bank knows that it will always be able to get unlimited short - term funding from the central bank against adequate collateral, it might become less restrictive in extending term credit in the interbank market. 5. further steps and open issues both the governmental initiatives to address credit concerns in the banking sector, as well as central banks ’ liquidity provision, have helped to stabilise the situation. three unanswered questions remain : will these measures be sufficient to let the financial markets return to normality? what are the downsides of the proposed measures? what else can be done? whether the measures put forward by governments will be successful will depend crucially on their design. so far, their announcement has halted the widening of money market spreads, but they have not resulted in a significant reduction either. some positive signs can be extracted from anecdotal evidence of at least some renewed activity in the term money market, and also in the short term european paper ( step ) market, where issuance by financial institutions has slowly, but steadily, increased over the past three months. in interpreting this evidence, one should keep in mind that the market is currently preparing for the year - end, which regularly causes market tensions, and there is hope that some recovery could take place early next year. these measures are often criticised on three grounds. first, they can be slow to implement, and, inevitably, this also affects the speed of recovery in the markets. second, in some cases, taxpayers ’ money is used to refinance an industry which has, in the past years,