financing conditions associated with a phenomenon of deleveraging. it is here that we have to closely watch developments. if such behaviour became widespread across the banking system, it would undermine the raison d ’ etre of the system as a whole. but there are more positive some elements as far as the financing of the corporate sector is concerned. one of them is given by the corporate bond market, where issue volumes have remained significant. in january, euro non - financial corporate issuance even reached a record high. hence, this channel is open, and it is functioning. of course, not all firms are benefiting equally from it, the pricing has become tougher and high volumes are likely to be partially compensating for more difficult bank financing. but in an environment where we need to search for factors of reassurance, the considerable issuance volumes in the corporate bond market are noteworthy. overall, however, there is no doubt that the situation in the financial sector and real economy remains very difficult. how are central banks, governments and other authorities responding to these challenges? and what more should they consider doing? the acute market conditions of last september prompted central banks to take a number of exceptional measures. these measures have been instrumental in organising a first line of defence against “ systemic liquidity risk ”. they include increasing the size and frequency of liquidity operations, extending the list of eligible collateral, significantly expanding our balance sheets and implementing unprecedented interest rate cuts. compared with the period before the start of the turbulence, the eurosystem ’ s balance sheet has grown by about €600 billion, an increase of 68 %, representing just above 6 % of the euro area gdp. this shows that our “ intermediation role ” has grown very significantly. we are now providing – and this is quite exceptional – unlimited refinancing to the banks of the euro area for maturities ranging from one week to six months in exchange for eligible collateral. this is a very important contribution to liquidity in the financial sector of the euro area. governments for their part have organised a second line of defence against what i have called “ systemic solvency risk ”. key measures have included recapitalisations, guarantees and asset support schemes. the eurosystem has issued recommendations on the appropriate framework for both government guarantees and recapitalisation measures. the aim is to support the banking sector in a way that avoids creating distortions in the single market. moreover, measures should be consistent with our

are not captured through traditional measures. in particular, i would highlight the following : • first, a rapid growth of trading book assets relative to traditional banking book assets and a fundamental shift in the types of risks retained in the trading book, in particular those arising from structured credit products. this is a natural consequence of the improvement in financial technology we are seeing, which enables more and more assets to be priced and traded. • second, the growth of the trading book is, in turn, producing a rapid growth in counterparty credit exposures relative to traditional credit exposures. as with market risk exposures, these counterparty exposures are becoming increasingly complex and difficult to measure. • third, the valuation of increasingly complex products presents yet another challenge. many of these products have not been tested under periods of stressed liquidity, which could have a significant impact on valuations. • fourth, the use of traditional approaches by many firms to assess their vulnerability to funding liquidity risk. these approaches may not take into account the growing reliance on active markets to manage the firm ’ s liquidity in an environment that is increasingly capital - markets driven. both the basel committee and the industry are currently exploring issues relating to the management and supervision of funding liquidity. • finally, the degree of risk transfer that is actually achieved through credit risk mitigation and securitisation techniques requires greater scrutiny. in particular, how well do these risk transfers hold up under stress? to what extent will risk be put back to firms if counterparties were to default, if investors were to demand compensation for losses, or if investor risk appetites were to shift abruptly? practical areas of focus for risk managers and supervisors trying to predict how all these risks will play out in practice can be demanding since we have little historical experience to guide us. growth in credit markets, synthetic securitisations, new market players and new risk management techniques have largely taken place over the past five years, that is, after the last credit downturn. i expect we will only experience a true period of stress when we have the combined impact of a credit downturn, a major shift in risk appetites and a withdrawal of market liquidity. firms have been challenged to develop more comprehensive stress tests that cut across risk types and business lines in a true downturn environment. stress tests that are produced on a regular basis are most evolved in the market risk area. regular credit risk stress tests tend to be conducted primarily at the level of business lines. more