had not even been considered relevant by most theorists of finance. now, the concept of “ systemic risk ” is almost common knowledge. second, we had thought that the financial system would act as a shock absorber. portfolio theory had demonstrated that the dispersion of individual risks would attenuate aggregate risk. but the mispricing of risk multiplied exposures, and the assumption of similar risks by market participants increased the potential for contagion. in the event, we learned that dispersion does not necessarily mean effective diversification. third, as central bankers we had to design intervention strategies that had not been studied in recent times. the extraordinary liquidity measures that central banks took at the height of the crisis on both sides of the atlantic had been expelled from the economics textbooks. the works of tacitus translated by alfred john church and william jackson brodribb ( 1864 – 1877 ). http : / / www. sacred - texts. com / cla / tac / a06010. htm. modern monetary economics had suggested that unlimited arbitrage in financial markets would make such measures irrelevant and unnecessary. 2 in the event, amid conditions of extreme uncertainty, private arbitrage was unavailable. as in ancient rome, public credit became vital because private finance had – at least temporarily – disappeared. what are some of the long - term lessons we can draw from the current crisis? just as we have had to re - evaluate our understanding of the nature of risk of market disruptions and the potential responses in terms of implementation of monetary policy, so we must re - evaluate our understanding of the role of financial markets in our economies and our societies. the lack of a framework for monitoring and addressing systemic risk in the run - up to the crisis is part of the motivation for financial reform and improved market regulation. but we must also consider fundamental questions about the relative importance and limits of the pure financial “ game ” in markets, the potential abuse of market power, and, more generally, the role of the financial sector in the economy. financial reform needs to go beyond the banking sector on which so much attention has been focused. we also have to look very closely at non - bank financial institutions and at the set - up and functioning of financial markets. leverage cycles, for example, have been a constant source of instability for centuries. if left to their own devices, their ultimate outcome has regularly been financial disruption, wealth destruction and economic hardship for our people. let me start

4 march we came to the conclusion that the current pace of phasing - out is appropriate. with the resumption of longer - term loans in the private market, we have started to adapt the conditions of our longer - term credit to banks. the first step was to announce a discontinuation of one - year and six - month longer - term refinancing operations. one - year refinancing now pays an interest rate indexed to the average rate that will be applied in our weekly main refinancing operations over its 12 - month life. the pricing will be the same in our upcoming and last 6 - month refinancing operation. this underscores the fact that our long - term refinancing operations are designed to assist banks in their control and management of liquidity risk. they are not an instrument of commitment to a future policy path. we will return to a competitive tender procedure for three - month operations in the second quarter of 2010. at the same time, we have made it clear that we will continue to conduct our weekly main refinancing operations and one - month operations as fixed - rate tenders with full allotment for as long as needed and, in any case, until 12 october 2010. while we monitor the conditions for a gradual phasing - out very attentively, we are convinced that a delayed exit from extraordinary liquidity support would distort market behaviour and misallocate credit. we do not wish to breed dependency. banks might become dependent on today ’ s very favourable access to central bank refinancing to such an extent that their incentives to repair their balance sheets remain weak. moreover, permanent extraordinary liquidity measures provide undifferentiated support to all banks, whether in liquidity deficit or in liquidity surplus. this opens the door to opportunistic bidding behaviour and to a sort of arbitrage across assets that is unproductive. what is our end point? we view the pre - crisis operational framework as a very natural reference point for the phasing - out process. of course, we are reviewing carefully the potential lessons of the financial crisis for the design of our operational framework. it seems to me, however, that in this respect the ecb has relatively little reason to change fundamentally what has served our monetary policy well, both in normal and crisis times. the speed and path of the phasing - out of non - standard measures will