vol. 87, no. 3, pp. 355 - 374. heider et al. ( 2008 ) map different phases of recent money market tensions into equilibria that are characterised by varying degrees of adverse selection. j. taylor ( 2008 ), “ a black swan in the money market ”, nber working paper 13943, points out that indeed the actions of the federal reserve did not help to alleviate tensions related to credit concerns. for details, see ecb ( 2008 ), “ the eurosystem ’ s open market operations during the recent period of financial market volatility ”, ecb monthly bulletin, may. when from september 2008 market tensions dramatically intensified, a new set of temporary liquidity measures was announced by the eurosystem on 8 october. first and foremost, all regular open market operations are now conducted as fixed rate tenders with full allotment, so that banks ’ aggregate demand determines the liquidity provision to the market. second, the width of the corridor between the two standing facilities was narrowed symmetrically to half its former size, in order to keep short - term rates under tighter control. finally, the list of assets eligible as collateral in eurosystem credit operations was expanded. the aim of this second wave of measures was to assure banks that the ecb was willing to provide sufficient liquidity under all circumstances, and to eliminate fears that liquidity problems could turn into a series of bank failures. the ecb however faced a conflict between trying to achieve, on the one hand, ample liquidity conditions and smaller fluctuations of short - term interest rates, and on the other hand, to maintain an active interbank market for short maturities. indeed, these second - wave measures were characterised by a major increase in the intermediation role of the ecb with respect to interbank money markets. notably, the average activity in the overnight segment of the money market ( which had increased after the failure of lehman brothers because of the replacement of longer - term lending by the rolling - over of shorter - maturity loans ) declined by around 40 %. possibly, however, the activity in interbank markets would also have declined further in the absence of the ecb ’ s measures, as they were introduced at a time when interbank markets had all but disappeared already. the benefits of recent ecb actions can be regarded from two perspectives. first, several of the new measures can help to re - activate the market in a direct way. the expansion

we currently act as a surrogate for the market in terms of both liquidity allocation and price - setting. • our second building block is the long list of assets that we take as collateral. this list was already very long before the crisis, but we have extended it even further and now accept an even wider range of securities as collateral. • the first two building blocks offer unlimited refinancing against a very wide range of collateral. but they can only reach the financial system if they are coupled with the third building block, namely the very large number of counterparties that have always been able to take part in our refinancing operations. even before the financial crisis, this number was higher than for the other major central banks. following the changes to our operational framework in october last year, this number rose further. all these non - standard measures were supplemented by further exceptional steps that the ecb ’ s governing council decided in early may and june this year. • we now conduct liquidity - providing longer - term refinancing operations with a maturity of 12 months. this will further lengthen the maturity at which we provide banks with liquidity at fixed rates and full allotment. this move is consistent with the operations we have undertaken since october 2008 and it recognises the central role played by the banking system in the euro area economy. • the european investment bank ( eib ) is becoming an eligible counterparty in the eurosystem ’ s monetary policy operations. access to the eurosystem ’ s liquidity is a natural complement to the eib ’ s financing initiatives and it will facilitate the accommodation by the eib of additional demand for its lending programme. • furthermore, the eurosystem will purchase euro - denominated covered bonds issued in the euro area of about €60 billion. these purchases will target an important segment of the private securities market, which has been particularly affected by the financial market turbulence. we have outlined the specific modalities of implementation last week. our primary concern when taking these decisions in recent months was to maintain the availability of credit for households and companies at accessible rates. i have described that as “ enhanced credit support ”. furthermore, our very flexible liquidity management ensured that solvent banks did not get into difficulties because of liquidity constraints. our response to the crisis has been carefully calibrated to the financial and economic structures of the euro area. in particular, we needed to bear in mind that the euro area ’ s financial system