##ity had basically dried up, since they could be used as collateral in credit operations of the eurosystem. the ecb ’ s liquidity interventions were also accompanied by an intensification of its communication policy. a key objective of communication efforts was to reassure market participants and the public at large about the ecb ’ s full awareness of the severe deterioration of liquidity conditions in money markets and its preparedness to act in order to preserve orderly conditions in money markets. in addition, increased communication was requested by the rather technical nature of issues related to liquidity management and the relative lack of familiarity of the general public with them, also in order to prevent and occasionally correct misunderstandings about the scale, modalities and objectives of the eurosystem ’ s liquidity operations. as regards the objectives of such operations, it was important to continuously remind market participants and the financial press that, under the eurosystem ’ s institutional set - up ( further reinforced by some changes to the operational framework in 2004 ), decisions on liquidity operations are separated from considerations on monetary policy stance. in fact, in the euro area changes in liquidity conditions are directed to implement the stance of monetary policy chosen by the general council, as summarised by the ecb official rates ( which are explicitly communicated to the public through the regular press release on monetary policy decisions ), and under no circumstances can be interpreted as signalling changes in such stance. from the first day it opened its doors, the ecb has stuck to this principle – the so - called separation principle – for reasons of accountability, transparency and efficiency in the implementation of its monetary policy. the need to remind the public of the separation between monetary policy formulation and implementation became essential in the course of the first phase of the turmoil against the background of strong inflationary pressures and rising risks to price stability. in addition to operational responses on the euro market, the eurosystem further strengthened its cooperation with other central banks, first by means of enhanced information sharing and collective monitoring of market developments and later on through coordinated steps to provide liquidity to euro area banks in what was, to my knowledge, the first systematic and multilateral initiative of central bank co - operation in the money market field, a market which is central to the implementation of a central bank ’ s monetary policy. more specifically, in order to address the concerns of euro area banks on the availability of their funding denominated in us dollars, in december 2007 the ecb agreed with the federal

pursuing the second objective, the eurosystem aimed to contribute to reestablishing confidence among market participants and to safeguarding financial stability, while also supporting the appropriate functioning of the monetary policy transmission mechanism. contributing to the stability of the financial system is among the tasks assigned to the eurosystem by the treaty establishing the european union under article 105 ( 5 ). ensuring the smooth functioning of the money market is crucial for central banks since the short - term segments of the money market represent the first step along the mechanism of transmission of monetary policy impulses, and their impairment may complicate the signalling and implementation of the desired policy stance. what did the eurosystem do in practice? in practice the eurosystem engaged in more active liquidity management and adjusted its modalities of liquidity provision to the euro area banking sector. as an illustration of more active liquidity management, let me recall our intervention right at the beginning of the market turmoil. the problems that originated in the exposure of many financial institutions worldwide to the us sub - prime mortgage market started simmering in international financial markets in the spring of 2007. in money markets the impact of the turmoil was initially felt mainly in the longer - dated unsecured inter - bank market and in nongovernment repurchase agreement ( repo ) transactions. tensions eventually spilled over to the very short - term money markets ( i. e. below one - week ) in the summer, at first in the us dollar market, where banks – particularly, the european institutions – encountered difficulties in raising short - term liquidity, and on 9 august 2007 to the short - term euro money market. after it became clear that there was the risk of an imminent gridlock in the euro money market, the ecb released a communication stating its readiness to contribute to orderly conditions in the euro money market. the ecb then put its money where its mouth is by providing eur 95 billion on an overnight basis to the euro area banking sector through a fine - tuning operation conducted as a fixed rate tender with full allotment. this operation marked the start of a new phase in which the eurosystem would make some adjustments to its liquidity supply practices in two main directions : 1. under its so - called front - loading policy, it modified the time profile for the provision of euro liquidity via the weekly refinancing operations within the reserve maintenance period ; and 2. it made adjustments to the modalities of distribution across instruments