, which is part of the wider eurosystem bank lending survey, provides very useful information on issues such as the banks ’ lending policies, their demand perceptions and their risk assessments. the september 2007 and january 2008 results highlighted the tightening in credit conditions on accounts of the higher cost of funding. they were nevertheless more optimistic than those of the euro area, and banks reported particularly sustained demand by both non - financial corporations and households. reminiscent of the effects of the 2001 - 2003 downturn on financial markets, fiscal policy in luxembourg is not oblivious to the current developments. the financial services sector accounts for about 30 % of total tax receipts and complacency in the early stages can have dire consequences for the medium term policy. after three years of significant revenue windfalls, the development in 2007 continued to be stronger than what could have been expected on the basis of the regular tax assessment bases. according to the preliminary results, the central government balance also returned to a surplus equivalent to 0. 7 % of gdp, for the first time after five years. nevertheless, the outlook for 2008 is highly uncertain, and, if the downturn on financial markets were to persist or to worsen, that would, akin to the real gdp prospects, weigh on tax receipts. lessons to be drawn and concluding remarks let me now share with you some reflections about lessons that may be drawn from the recent turmoil. there are a number of weaknesses that have been highlighted during the recent months and call for corrective actions by the private and public sectors. a financial sector that generates on the one hand huge revenues for some of its participants but on the other hand regular crises with high costs for non - participants, is in my view ripe for a hard look at the balance of existing incentives. the first issue that i would like to stress is the obvious underestimation by financial actors and supervisors of the actual degree of leverage in the financial system. this leverage is not only generated by traditional banking activities but also by highly leveraged institutions, sivs, conduits, lbo - financed firms etc. yet there has been an imperfect assessment of the existing risks arising from the linkage between the banking sector and all these sivs and conduits. indeed, the recent financial turbulences have pointed out that significant risks may be transferred back to banks using puts, guarantees, credit lines or other mechanisms. hence it seems urgent for the financial industry to improve its risk management practices and the transparency in this respect. these characteristics, coupled

of my speech, i will try to shed light on how luxembourg has been impacted by these turbulences and what we expect in the near future. as regards the most pressing concerns, the liquidity position of the luxembourg banking sector was hardly affected according to the standard indicators which display a liquidity level considerably higher than the minimum required which is currently set at 30 %. however, as central bank we follow with a great attention the liquidity needs of the luxembourg banking system. as a result, during the turmoil months, we have observed the participation of 4 to 5 additional counterparties for some mros even if on the average the number of bidders has remained unchanged. furthermore, as regards ltro operations, we have also noticed an increase in the average bid amount from €3. 9 to €4. 3 billion. however, the average aggregate amount of liquidity provided by the bcl to its counterparties has not risen compared to the end of july. notwithstanding this fact, an increase of 20 % in the total collateral deposited at the bcl by our counterparties has been observed from july to december 2007. by this, counterparties might have intended to ensure a potential access to liquidity if needed. finally, the bcl as a member of the eurosystem is participating in the joint actions of the ecb and the federal reserve, providing us dollar funding to luxembourg counterparties. the relative portion of central bank provision of liquidity shows, however, that other national central banks than luxembourg have increased their shares in the total liquidity provisions. this would allow for two deductions : either the luxembourg financial sector is less affected by the crisis and the stable need of domestic intermediaries for central bank liquidity may reflect the net creditor position and the soundness of the aggregate balance sheet as well as the relative independence of these banks inside their groups. or, as a consequence of the crisis, core functions of banking groups have been further centralized and funding and liquidity management is concentrated even more at headquarters than before. let me add that the relative share of luxembourg banks in securitization is low relative to international standards. therefore, banks in luxembourg might be less affected on the liquidity side of the balance sheet than on the asset side. as regards the impact on the economic activity, the fallout from the us housing market problems has provoked a downturn that proves to be more severe and more protracted than initially assumed. in this respect, the euro area and the luxembourg economy