255 billion in december 2008. 10 also in this regard, the governing council of the ecb proposed a methodology for benchmarking the pricing of state recapitalisation measures for fundamentally sound institutions in the euro area. these recommendations are without prejudice to guidance from the european commission aimed at avoiding undue distortions to competition in accordance with state aid rules of the treaty. the pricing system proposed by the governing council of the ecb considered that any recapitalisation should take into consideration the specific market situation of each institution, distinguishing in particular between fundamentally sound and distressed banks. based on this premise, it provided for a required rate of return, captured by a “ price corridor ”, which varies depending on the type of instrument. the lower band of this corridor is applied to instruments with features similar to those of subordinated debt and the higher band to those with features similar to ordinary shares. it is also recommended that the temporary nature of recapitalisation measures should be ensured by providing financial institutions with incentives to redeem such instruments and that the pricing system be revised periodically to reflect possible changes in market conditions. overall, i am fully confident that the actions taken by central banks and national governments provide an appropriate response to the challenges raised by recent events. still, restoring market functioning and returning to normal market conditions ultimately depends on the banking sector. in this context, reactivating the interbank market and ensuring the proper financing of the economy is of the utmost importance. section 4. going forward : a new environment for central banking? up to now, i have delved into the underlying causes of the current situation, and have discussed the various policy responses announced or implemented by different competent authorities, and the envisaged challenges ahead, especially for those areas that are under the partial or exclusive competence of central banks. looking forward, the current crisis is likely to bring important changes for the future of the economic and financial systems in which we live. these include revisions to the regulatory and supervisory domains, reforms of the international financial architecture as well as changes in the nature of the relationships and coordination among the different policies and public authorities. therefore, we are likely to witness a number of institutional changes that are likely to bring a new environment for policy making in a number of areas, including several aspects related to central banking. in the last part of my intervention, i would like to share with you some thoughts on this potential new environment. more international convergence in liquidity frameworks? since august 2007 central banks have responded in

efforts have focused on providing support to traditional banks, while other central banks, such as the fed, have also extended their support to other financial institutions. since the inception of the euro, the eurosystem ’ s operational framework has granted access to the eurosystem ’ s credit operations to a very large number of counterparties 8, both via the marginal lending facility and the open market operations. counterparty eligibility criteria have been defined in general terms so that a wide range of depository institutions, including small saving banks and co - operative banks, have direct access to central bank liquidity. the combination of a large list of counterparties and a similarly wide range of assets eligible as collateral ( recently expanded further on a temporary basis ), has proven very useful during the turbulence, since it has allowed the eurosystem to reach a very large number of financial intermediaries at a time when short - term interbank markets are not functioning properly. monetary policy the financial crisis has radically changed the environment of monetary policy making. the rises in oil and commodity prices that generated concerns about upside risks to price stability in recent years suddenly stopped in the course of 2008. the materialisation of downside risks to growth and the decline in inflationary pressures ( largely due to falling commodity prices and the effect of the deepening of the financial crisis and its spread to the real economy ) have led to a significant reduction in upside risks to price stability. from today ’ s perspective, the great moderation, the era of remarkable macroeconomic performance started in the mid - 1980s, appears surprisingly remote. monetary policy makers have had to adapt quickly to the present macroeconomic and financial environment, which can be best characterised by the concept of non - measurable risk, or “ knightian ” uncertainty. as you know, the economist frank knight developed a distinction between “ risks ” ( to which probabilities can be assigned ), and “ uncertainty ” ( for which even these probabilities are unknown ). the very sharp increase in uncertainty that is typical of periods of financial instability had immediate consequences in the risk premia that lead to a strong preference for safe and liquid assets. allow me to focus for a second on the evolution of the risk premia and its implications for the conduct of monetary policy over the more recent period. since the beginning of the financial turmoil in the summer of 2007, financial markets have gone through a dramatic process of gradual revaluation and re - pricing of risk, not only in the us and the