backed commercial paper is a somewhat different story. because this short - term paper must be redeemable at maturity, despite the longer - term assets that back it, it must carry a guarantee from a liquidity provider. so, there is a question of how liquidity providers should take into account the potential for liquidity calls to be made, both in terms of the capital they hold against this potential, and the liquidity of the assets on their balance sheet. this issue, which came to the fore this summer, represents a key challenge for the members of the iif. how do you make provisions for liquidity calls that may come against the guarantees that your institutions provide, and for the support of products that represent a reputational risk should they fail? these are not easy questions to answer, but it is important that you provide your own answers and be prepared to discuss them with your regulator in the context of the implementation of basel ii. and i am pleased to see that the iif has been working hard on these particular issues. finally, this summer's turbulence has raised a number of system - wide issues related to liquidity. in the event of a serious disruption in securities markets that would threaten financial stability, are there policies that would be helpful? the financial stability forum has been looking at this issue. and of course it is not only commercial banks that need to worry about this, it is also a problem for central banks in their role as the ultimate providers of liquidity to the banking system. over the summer, central banks have seen that their standing liquidity facilities have worked quite well with respect to the market for overnight funds. different central banks have different practices and facilities in place to provide liquidity to the banking sector. in canada, we have clear rules for accessing our standing liquidity facility to cover routine overnight liquidity needs. and we have clear rules regarding emergency lending assistance for individual solvent banks with acute liquidity problems. but are there principles that would suggest that some market failures would be best dealt with if we had a readily accessible facility that would provide liquidity to banks at terms longer than overnight, collateralized with a possibly wider range of securities? such a facility would have to allow for suitable term premiums and penalties. the types of market failure that such a facility would be designed to deal with would obviously need to be thoroughly examined and discussed, as would the pros and cons of any specific proposal, including a consideration of all other issues that might be

crunch that has further aggravated the crisis. cyclical factors have thus played an important role in increasing unemployment. the ecb has reacted to the crisis on three fronts. as for “ conventional ” monetary policy, it has cut interest rates from 1. 5 % in november 2011 to 0. 5 % today. it has reduced the interest rate paid by banks on their deposits at the ecb from 0. 75 % in november 2011 to – 0. 20 % today. it also activated at the end of 2011 credit lines for the banking system amounting to €1 trillion and with an unprecedented maturity of three years. subsequently, facing the reemergence of the sovereign debt crisis and a serious crisis of confidence about the survival of the euro, it introduced the now famous outright monetary transaction programme which has helped to rapidly reduce uncertainty in the financial markets in the euro area and to realign spreads with the credit rating. more recently, it has introduced a further three measures of unconventional monetary policy : the tltros, credit lines of up to four years that can be used by banks for loans to households and businesses ; two programmes for the purchase of covered bonds and abs with the aim being to further expand liquidity via operations directed towards the real economy. all these policy actions, accompanied by the expected maintenance of interest rates at their current level for a long period of time and an ongoing expansion of the ecb ’ s balance sheet, together with the commitment by the bis central bankers ’ speeches governing council to take further unconventional policy actions should medium - term inflation expectations worsen or if the measures already decided on prove to be insufficient, has led to an unprecedented degree of monetary accommodation. today, all the current and expected market interest rates over all horizons are lower than they have ever been, and lower than they are today in the united states. but most of the measures taken may have effects on the real economy only through banks, which in the euro area intermediate about 80 % of the credit. only if they pass on to households and businesses the extraordinarily accommodative conditions in terms of interest rate, the maturity, the quantity that the ecb offers them, will monetary policy be fully effective with its stimulus. for that to happen it is not only necessary for there to be demand for credit from customers able to repay it, but that they [ the banks ] themselves are healthy. it is to this end that the ecb, on the eve of becoming the single supervisor for the euro area