reasons, congress also has long sought to maintain the general separation of banking and commerce in the united states. this position was reaffirmed by congress in the competitive equality banking act of 1987 and again in the glb act of 1999. in fact, in each of these acts the congress took affirmative action to close the main loophole then being used by commercial firms to acquire fdic - insured depository institutions - - the so - called " nonbank bank " loophole in 1987 and the unitary thrift loophole in 1999. ilcs have developed and expanded in recent years outside this framework that governs banking organizations generally. because of their special exemption in federal law, any type of company may acquire an fdic - insured ilc that is chartered in certain states without regard to the activity restrictions that congress has established to maintain the general separation of banking and commerce. the exemption also allows a company to acquire an fdic - insured bank and avoid the consolidated supervisory framework - - including consolidated capital, examination and reporting requirements - - that applies to the corporate owners of other full - service insured banks under the bhc act. in addition, the exemption allows a foreign bank to acquire a u. s. bank engaged in retail banking activities without meeting the requirement under the bhc act that the foreign bank be subject to comprehensive supervision on a consolidated basis in its home country. as insured banks, each ilc is supervised by the fdic as well as by its chartering state. the board has never questioned either the need for, or the adequacy of, this supervision of an ilc. however, experience has led congress to determine that supervision of a full - service insured bank is not sufficient, by itself, to protect the taxpayer and the financial system when the bank operates as part of a larger corporate organization. the fdic does not have the authority to supervise the corporate owners of ilcs and their affiliates in the same manner that bank holding companies and their nonbank affiliates are supervised under the bhc act. the gao recently concluded that, due to these differences in authority, exempt ilcs may pose more risk to the deposit insurance funds than banks operating in a bank holding company structure. the exemption for ilcs in the bhc act also permits a diversified securities, insurance or financial firm to acquire an fdic - insured bank without complying with the enhanced capital, managerial and community reinvestment act ( cra ) requirements established by congress in the g

. 1 i will then turn to the current state of the economy to extract inferences about the effectiveness of our strategy. i will then conclude looking forward. monetary policy responses to the crisis in the euro area, the crisis has evolved through three phases. the first phase was triggered by the abrupt liquidity strains that almost paralysed the global financial system in the immediate aftermaths of the collapse of lehman brothers. banks – both in the euro area and elsewhere – suddenly became very uncertain about the underlying health of other banks and stopped lending to each other. the ecb was very swift in its response, faithful to its responsibility to guarantee appropriate liquidity conditions to solvent banks. together with other major central banks, the ecb stepped in with forceful and coordinated interventions to provide essential liquidity to the banking sector. in the euro area, liquidity was made available in virtually unlimited amounts – against eligible collateral – and at increasingly longer tenors, which helped those banks that were being negated access to market refinancing to remain in business and continue their key intermediation function. without this response, the financial system would have imploded and a far deeper contraction would have occurred. 1 / 6 bis central bankers'speeches the second phase of the crisis came as a consequence of the loss of confidence in some sovereigns. it brought on the development of redenomination risk and thereby threatened the integrity of our currency. the sovereign debt crisis found impulse in some cases from a weak fiscal position, whereas in others from a weak banking system. but irrespective of its initial impulse it quickly became a two - way interaction through the “ bank - sovereign ” nexus. banks remained dependent on fiscal authorities for solvency assistance, and the financial obligations vis - a - vis banks that this responsibility created on the side of some national fiscal authorities with weak fundamentals further undermined their credit standing. as the cost of borrowing for certain governments increased, banks with exposures to this debt came under intense market pressure, ultimately leading to entire national banking systems losing market access. this in turn resulted in financial fragmentation and a serious disruption to the monetary transmission mechanism. the ecb had not remained inactive in the face of such vicious feed - back loop, as it saw the implications that such dynamics could have for price stability. but, as the ecb lowered interest rates, these reductions were not being passed on to firms and households in a large part of the euro area, signalling an unusual disconnect between expanding