the federal reserve ’ s purchases of longer - term securities have not affected very short - term interest rates, which remain close to zero, but instead put downward pressure directly on longer - term interest rates. by easing conditions in credit and financial markets, these actions encourage spending by households and businesses through essentially the same channels as conventional monetary policy, thereby supporting the economic recovery. a wide range of market indicators supports the view that the federal reserve ’ s securities purchases have been effective at easing financial conditions. for example, since august, when we announced our policy of reinvesting maturing securities and signaled we were considering more purchases, equity prices have risen significantly, volatility in the equity market has fallen, corporate bond spreads have narrowed, and inflation compensation as measured in the market for inflation - indexed securities has risen from low to more normal levels. yields on 5 - to 10 - year treasury securities initially declined markedly as markets priced in prospective fed purchases ; these yields subsequently rose, however, as investors became more optimistic about economic growth and as traders scaled back their expectations of future securities purchases. all of these developments are what one would expect to see when monetary policy becomes more accommodative, whether through conventional or less conventional means. interestingly, these developments are also remarkably similar to those that occurred during the earlier episode of policy easing, notably in the months following our march 2009 announcement of a significant expansion in securities purchases. the fact that financial markets responded in very similar ways to each of these policy actions lends credence to the view that these actions had the expected effects on markets and are thereby providing significant support to job creation and the economy. my colleagues and i have said that we will review the asset purchase program regularly in light of incoming information and will adjust it as needed to promote maximum employment and stable prices. in particular, it bears emphasizing that we have the necessary tools to smoothly and effectively exit from the asset purchase program at the appropriate time. in particular, our ability to pay interest on reserve balances held at the federal reserve banks will allow us to put upward pressure on short - term market interest rates and thus to tighten monetary policy when required, even if bank reserves remain high. moreover, we have developed additional tools that will allow us to drain or immobilize bank reserves as required to facilitate the smooth withdrawal of policy accommodation when conditions warrant. if needed, we could also tighten policy by redeeming or selling securities. fiscal policy fiscal policymakers also face significant challenges. the

the citizens and advised the government. 3. safeguarding financial stability in addition, however, to its advisory role in economic policy making, the bank of greece also had decisive powers and responsibilities for shaping a strategy for the banking sector, constantly geared to safeguarding financial stability. although the crisis in greece started in the public sector, contagion to the banking system was inevitable. the banking system was hit by the successive downgrades of the greek government ’ s credit rating that led to corresponding downgrades of the banks ’ credit ratings. this fact, on the one hand decreased the value of collateral available to banks for borrowing from the eurosystem, and on the other hand made their access to the interbank market particularly hard and expensive, gradually leading to their exclusion. with the debt restructuring in 2012 the value of the bonds held by greek credit institutions was severely impaired. thus their capital position was eroded or even turned negative. at the same time, the recession was leading to a continuous increase in non - performing loans, while the surrounding uncertainty was encouraging deposit withdrawals. bis central bankers ’ speeches to safeguard financial stability, the bank of greece intervened by taking several targeted steps. i shall only briefly refer to the most important among them. first, the bank of greece ensured the uninterrupted supply of liquidity to the banking system, including by emergency assistance to the extent required. the provision of emergency liquidity assistance was reviewed every two weeks and the ecb governing council could put a stop to it for a variety of reasons ( lack of collateral, low capital adequacy ratios of the banks, incomplete implementation of the programme, etc. ). we therefore had to thoroughly prepare our positions and persistently intervene to prevent any negative developments. second, to avoid a further shaking of the confidence of depositors we constantly had to supply the banking network with banknotes, so as to prevent cash shortages at bank branches or atms. in chapter 8 of the book we release for the first time data on the increased demand for cash and the bank ’ s cash management during the crisis, which i believe you will find very interesting. third, we had to map out a strategy for the recapitalisation, restoration of soundness and restructuring of the banking system. the point of departure for this strategy was the first diagnostic assessment of greek banks conducted with the help of blackrock in 2011, and the viability study that followed in 2012. the bank of greece engaged foreign agencies to assist