issues relating to the profusion of financial innovations that emerged during the last boom episode should now rank high on the agenda. indeed, regulatory lapses seem to me to lie at the heart of the subprime crisis, which appears to many as a “ credit boom gone bad ” 5. recent research by dell ’ aricia, igan and laeven ( 2008 ) shows for instance that delinquencies in the us subprime mortgage market are statistically larger in areas that experienced larger increases in the number and volume of loans, because the latter was linked to a decrease in lending standards. in turn this deterioration in lending standards by banks can be explained by changes in market structure ( with the entry of new aggressive competitors ) and the increasing recourse by banks to asset securitization and loan sales.

1. as regards liquidity management first, it should be emphasized that close cooperation between central banks, and notably between the ecb and the fed has been crucial for dampening the effects of the protracted confidence crisis that has frozen up international money markets. our coordinated actions with the fed and other major central banks, notably to provide euro area resident banks with us dollars under swap agreements with the fed, have clearly demonstrated our determination to act collectively to restore normal liquidity conditions in the interbank markets. enhancing swift and complete information exchanges between central banks, and also between central banks and supervisors is certainly a continuing priority. i have to say that the french model of bank supervision, where the supervisors are inside the central bank, has shown once more its advantages in the current context. 2. as regards monetary policy, i want to stress that even a flexible policy – as inspired by risk management considerations a la miskin – can only be implemented if needed when inflation expectations remain appropriately anchored to the central bank ’ s objective. in other words, a solid anchoring of inflation expectations remains a prerequisite for rate cuts in times of heightened financial uncertainty and downside risks to growth. i am convinced that in times of financial trouble it is all the more necessary to insure price stability. in that respect, the diagnosis regarding the state of inflation expectations is thus decisive in the current juncture. usual market - based indicators such as break even inflation rates ( beirs ) are reliable indicators of long term inflation expectations 4 ; however, such market - based indicators may be plagued by unusually large risk or liquidity premia during a period of financial turmoil, which means that we have to be very cautious in our assessment. more concretely, this implies that the plummeting real rates and tighter beirs on some market ( see for example the market for french indexed debt over the last few cf. for instance coffinet and frappa ( 2008 ) at the banque de france, and beechey, johannen and levin ( 2008 ) at the board of the us federal reserve. weeks ) may well be partly explained by such technical factors and not reflect any marked deterioration in the outlook for inflation. but we should obviously remain especially cautious in order to keep expectations firmly anchored. 3. last but not least, we should keep in mind that central banks, either viewed as the monetary policy - makers or as the lenders of last resort, cannot and should not be held responsible for everything. in my view, regulatory