was reduced by a cumulative 400 basis points of their net demand and time liabilities ( ndtl ) to 5. 0 per cent, and ( iv ) the total amount of primary liquidity potentially made available to the financial system was over 5. 6 trillion or over 10 per cent of gdp. the government also come up with various fiscal stimulus measures. in october 2009, it was not easy to exit from the excessively accommodative monetary policy stance for two main reasons. first, the year - on - year headline wpi inflation had just barely turned positive and was entirely driven by food inflation. industrial production had started to pick up but exports were still declining. hence, recovery was not assured. second, globally, most central banks were in favour of continuing stimulus. on the other hand, domestically, consumer price inflation was high, households ’ inflation expectations were rising and surplus liquidity was substantial as reflected in the reserve bank ’ s liquidity adjustment facility ( laf ) window. these developments had inflationary consequences. in its second quarter review of monetary policy for 2009 – 10, the reserve bank after wider consultations provided the arguments for and against beginning reversal of monetary easing. on balance of considerations, the reserve bank judged that the time was appropriate to sequence the exit in a calibrated way so that while the recovery process was not hampered, inflation expectations remained anchored. the exit process thus began with the closure of the special liquidity facilities instituted during the crisis. this amounted to withdrawal of potential liquidity to the tune of ` 1. 7 trillion. phases of inflation the evolution of the inflation process since the beginning of the exit in october 2009 can be characterised into four different phases : phase i – october 2009 – march 2010 ; phase ii – april – july 2010 ; phase iii – august – november 2010 ; and phase iv – december 2010 onwards. as the drivers of inflation changed over the phases, the response of monetary policy was calibrated on the basis of changing dynamics of inflation as also the growthinflation balance and the evolving global economic conditions. bis central bankers ’ speeches phase i. october 2009 – march 2010 the year - on - year headline wpi inflation accelerated from under 2 per cent in october 2009 to above 10 per cent by march 2010 ( chart 1 ). a major part of this increase in inflation was attributed to the waning of base effect. in addition, the price pressures largely emanated from food. there was severe deficiency in rainfall during 2009

##m ) after the financial crisis entailed a major transformation for all euro area supervisors and banks. as you know, i was involved in the creation and early working years of the ssm, so objectivity may fail me ; we all tend to defend that which we have helped create. but i honestly believe that, in spite of its defects, we now have a truly european supervisory powerhouse. it is a shame that the banking union ( bu ) edifice is not quite complete and that we still need to shore up the european institutional framework with a deposit insurance scheme with full european backing. we also need greater regulatory homogenisation, in sensitive areas such as money laundering, fit and proper and insolvency. developments in the regulatory framework naturally, the prudential regulatory framework defined by the basel committee on banking supervision ( bcbs ) also bears little resemblance to what was in place prior to the financial crisis. as you are aware, the changes affected all the elements that define the capital ratio. following the introduction of basel iii : ( i ) the numerator´s capital is calculated according to a new, more demanding definition ; ( ii ) the denominator reflects banks´ risks more conservatively, having translated them into weighted assets ; and, finally, ( iii ) the ratio level demanded has increased considerably, including additional “ buffers ” which, inter alia, cover the risk posed by systemic institutions. other complementary metrics have been added to the classic solvency ratio, relating to banks ’ liquidity or leverage, and discretionality in the use of internal models, has been limited to reduce procyclicality and prevent excessive variability in the calculation of requirements. all these improvements have been gradually introduced. in spain the process has run in parallel with the correction of the overcapacity, that the sector had when the financial crisis broke, and with the ongoing clean - up of non - productive assets. the efforts made by the sector have been most considerable, greater even than the charts show. for example, when we look at how the capital ratio has changed since the financial crisis, we should bear in mind that the comparison is not like - for - like ; today this ratio is constructed on the basis of much stricter definitions and criteria than those in 2009. likewise, when we assess our ability to pre - empt and respond to a crisis, we should consider the european supervisory institutional framework we have today, which did not exist just 10 years back. resili