home bias is general risk aversion. in addition, we are very attentive in monitoring whether regulatory initiatives – including anticipation of future liquidity ratios – or initiatives from national supervisors are affecting this market, especially across borders. we have partly responded to the fact of increased heterogeneity by allowing some national central banks to enlarge the collateral pool. this was essential to ensure sufficient outreach to the real economy in their constituencies in a context of significant heterogeneity. they could accept more direct credit claims, particularly to support credit to the small and mediumsized enterprises that are so important for investment and employment. this collateral enlargement was crucial for addressing a situation of liquidity abundance in some countries and liquidity scarcity in others. the enlargement has taken place with prudence and its risk management framework is overseen by the governing council. while the process will take time, the restoration of adequate credit flows and the renewed functioning of the interbank market remain our firm objectives. 2. europe ’ s growth agenda let me now turn to the european growth agenda. strengthening the growth potential of our economies is crucial. we have a whole range of pending reforms at the national level : the liberalisation of product markets ; the removal of bureaucratic impediments to entrepreneurial activity ; greater labour market flexibility, which facilitates the re - entry of the unemployed into the job market ; and a growth - friendly composition of fiscal adjustment. let me elaborate a little. bis central bankers ’ speeches product market regulations can be streamlined so as to foster competition, particularly in sheltered professions and the services sector. extensive administrative reforms should facilitate the start - up of new firms. moreover, judicial systems can be adjusted so as to resolve and avoid court backlogs, which hamper the conduct of business activities. once a critical mass for such reforms is achieved, they will considerably strengthen economic dynamism, innovation and employment. these efforts should be complemented by active labour market policies, targeted at the lowskilled, the elderly and young unemployed people. this would facilitate re - entry into productive activities for those who typically face the most difficult starting position. it would also foster social cohesion despite the burden of economic adjustment facing our economies. second, important reforms are pending at the eu level, with the implementation of the services directive being a very important initiative to facilitate cross - border trade in services. by reducing the market power of producers, these reforms will put downward pressure on prices and

mario draghi : president ’ s address at the 14th ecb and its watchers conference speech by mr mario draghi, president of the european central bank, at the 14th ecb and its watchers conference, frankfurt am main, 15 june 2012. * * * ladies and gentlemen, it is a great pleasure to take part in this fourteenth edition of the ecb watchers conference – and the first i am attending as president of the european central bank. as you are all aware, the ecb has the crucial role of providing liquidity to sound bank counterparties in return for adequate collateral. this is what we have done throughout the crisis, faithful to our mandate of maintaining price stability over the medium term – and this is what we will continue to do. the eurosystem will continue to supply liquidity to solvent banks where needed. in normal times, “ adequate liquidity ” may be defined as a volume of refinancing in line with the need for banks to meet the obligatory reserve requirements and the financing of other autonomous factors. in times of increased financial instability, “ adequate liquidity ” indicates a volume of central bank money that also counteracts a temporary inability of banks to refinance in the market, which could lead to systemic consequences for the banking sector as a whole. in my introductory remarks this morning, i will talk in a little more detail about the ecb ’ s monetary policy. i will also discuss europe ’ s agenda for growth and issues relating to a longer - term vision of our economic and monetary union. 1. considerations on monetary policy let me start with monetary policy. there are two features i would like to highlight. the first relates to the effectiveness of the three - year long - term refinancing operations ( ltros ) that we launched a few months ago. as you will recall, these operations were introduced in an environment where money market spreads had surged, liquidity had dried up and banks ’ access to market - based funding had eroded rapidly. the uncertainty about market - based funding for banks – especially medium - term funding – was perhaps the most critical issue in that environment. it truly threatened to undermine bank lending and created pressures for a broad - based deleveraging. a resulting credit crunch would have severely aggravated the slowdown in economic activity, hurt employment and given rise to acute downside risks to price stability. we must always remember that over two thirds of external financing of firms comes from banks. this ratio is even higher for small