are at stake. at the end of the crisis, when it is economically justified to downsize those measures, economic nationalism will be lurking again, albeit unintended. at the end of the crisis we may enter a period in which governments cannot sell their stakes in banks or downsize the coverage of the insurances schemes, without the risk of putting their institutions at a comparative disadvantage to their protected peers abroad. it ’ s time to start thinking about a credible exit strategy. again, coordination and timing are important. selling or reducing stakes in banks too early could reduce investors ’ and depositors ’ faith in those banks. getting out too late would cause a prolonged period of market disruption as institutions ( partially ) owned by governments are at a competitive advantage over privately owned banks. prolonged government intervention hampers the healthy effects of competition. normalization of the markets is far more difficult under those circumstances. even if unintended and socially justifiable, substantial state interests in financial institutions is effectively protectionism. guarantee schemes are a powerful tool to create confidence in banks and protect depositors, but the downside is that they stand in the way of market normalization. and the threat is not just that some governments may choose to maintain their policies longer than others. the terms and conditions of state withdrawal will materially affect a bank ’ s competitiveness vis - a - vis its peers. in other words, the level playing field is at risk. everyone can rationally envision the problems of downsizing crisis policies, and the subsequent reluctance of governments to reverse nationally orientated measures. especially if this puts their financial institutions at a comparative disadvantage. since all governments are going to face this dilemma, the only way out is coordinated action. if we fail to coordinate towards the end of the crisis, distortions will emerge and some governments will keep substantial stakes in credit institutions for a long time. while i don ’ t say governments shouldn ’ t hold stakes in financial institutions, i think it is time to discuss the terms and conditions, including the exit strategy. fighting this crisis has been a learning process. and i guess we are still on the steep part of the learning curve. we have definitely experienced that it can always get worse, and to be prepared for that. we have seen that measures labelled as “ too drastic ” may at some point become the appropriate response. and we have learned that you can ’ t fight a crisis like this on your own. by many standards this crisis has been, and still is

authorities addressed the crisis with tailor - made rescue plans for troubled institutions. however, this piecemeal support failed to prevent a rapid erosion of market confidence, especially after the lehman failure. authorities reacted by adopting more systemic approaches to prevent bank failures. one example is the troubled asset relief program in the united states. another is the common rescue framework adopted by eucountries in october 2008. under this framework, the eu countries committed themselves to fight the crisis through explicit government guarantees on retail deposits, guarantees for bank liabilities and capital injections. these programmes succeeded in halting the deterioration of confidence in the banking sector : bank cds spreads narrowed across the board and reached a permanently lower level from the middle of october onwards. the lesson learned is that system - wide stress demands a systemic approach to reducing the risk of bank defaults. the learning effect is also true of government capital injections into banks. these measures have been much needed to avoid a collapse of the banking system. however, many of the capital injections have been eroded by rising losses on toxic assets. this has prompted a number of governments to announce asset purchase or guarantee programmes. recapitalisation of troubled institutions is not sufficient unless authorities tackle the asset problem on banks ’ balance sheets simultaneously. central bank measures to address funding pressures by banks have also benefited from advancing insights. initially, the ecb and other central banks resorted to existing tools to stabilize overnight interbank rates. but the need for longer - term funding operations to address bank ’ s general unwillingness to lend in term interbank markets quickly emerged. while central banks supported the money markets, the situation in the wholesale and debt funding markets became critical. lending by non - bank financial institutions and across currencies also started to dry up. this prompted the introduction of new lending facilities, arrange currency swap lines between central banks and widen the range of counterparties beyond conventional frameworks. the lessons from this are twofold. first, during a prolonged liquidity crisis, central banks might need to shift their focus more towards nontraditional bank funding rather than just the money market. and second, when central banks are confronted with setbacks, they need to be pro - active to overcome those challenges. as i said, authorities implemented a number of policies to fight the pandemic. some of those worked, others didn ’ t. however, each of the measures has its merits, and i would like to stress that their success or failure are a matter of hindsight. i