same time obtained slightly more services from each bank than did firms that used only larger banks. this suggests that community - bank - only firms are more likely to cluster their purchases at a single institution than are other firms, behavior that is consistent with the importance of relationship finance. overall, in my judgment, our survey data confirm the view that, despite changes in the competitive environment, community banks continue to play an important role in providing relationship finance to small businesses in their local banking markets. potential conflicts of interest the very relationships that underlie relationship finance, and that constitute the primary source of community bankers ’ comparative advantage in meeting the financial needs of small businesses and households, also present challenges. as i mentioned earlier, relationship finance dates back to the very earliest banking institutions in our country. although the extreme form of relationship lending that characterized early nineteenth century new england banking had the potential to undermine the safety and soundness of these early banking institutions, naomi lamoreaux ’ s research suggests that market forces acted to minimize the adverse effects. in an environment characterized by easy entry into banking, bank directors apparently had strong incentives to monitor lending and minimize risks because their business success depended crucially on maintaining their unsullied reputations. of course, this salutary outcome was by no means inevitable, as evidenced by experiences in a number of developing countries where this type of lending behavior has had quite pernicious effects ; rather, the outcome was the result of the particular circumstances and competitive environment prevailing in new england at the time ( lamoreaux, 1994 ). when it comes to more recent times, evidence on the extent to which conflicts of interest resulting from close ties between banks and their potential borrowers may have adversely affected bank performance is limited to studies of the largest banking organizations. one example is my own research with phil strahan that looked at linkages between the boards of directors of banks and nonfinancial firms. such board linkages can be beneficial because they improve information flow between the linked firms ; however, they can also lead to conflicts of interest because the individual who serves as the link has fiduciary responsibilities to both firms, and those firms ’ interests can sometimes diverge. in our research, phil and i focus on board linkages between large u. s. banks and fortune 500 nonfinancial firms. this focus is driven largely by data availability. i would be very interested in hearing from you about the extent to which community bankers sit on the boards of nonfin

by governments. consequences of the ecb ’ s actions so what can citizens expect will be the consequences of the new programme? let me emphasise three key points. first, our actions will not lead to disguised financing of governments. interventions will take place solely on the secondary market, where bonds already issued are traded. this is fully consistent with the treaty ’ s prohibition on monetary financing. and since we will only purchase bonds with a remaining maturity of between one and three years, there will still be ample room for market discipline on governments at longer maturities. second, our actions will not lead to inflation. the weak overall economic situation, combined with slow money growth, means that the risks of inflation are currently very low over the medium term. our interventions will not change this outlook. in fact, for every euro we inject with our interventions, we will withdraw a euro. so they will not affect monetary conditions. furthermore, we see no signs that our announcement has affected inflation expectations. they are firmly anchored because we have always delivered price stability. and citizens can trust that we will continue to do so : price stability remains our mandate and our sole objective. third, our actions will not lead to greater risks for taxpayers in germany. taxpayers are protected by the fact that our interventions will take place only in countries with sound economic and fiscal policies. their continued commitment to these policies will be ensured by the esm programme. and the ecb will assess compliance with this programme in full independence. moreover, by normalising conditions in financial markets, our actions will help reverse the capital flows into germany that are creating some distortions here. this should ultimately support the savers, pension funds and insurance companies that depend on interest income. and it should reduce target2 imbalances. in other words, ecb actions that support market confidence are of benefit not only to countries in difficulty, but also to the euro area as a whole. our measures ensure the proper transmission of monetary policy, which means neither excessively high interest rates nor excessively low interest rates. the measures enable the ecb to continue to maintain price stability for the benefit of all citizens of the euro area. the announcement on omts has already triggered positive effects. sentiment in financial markets has improved significantly. excessive government bond spreads have gone down, a number of banks in stressed countries have been able to regain access to markets and target2 balances have broadly stabilised. the way forward let me draw to a close. actions by the ecb