from the balance sheet of the originating bank and credit risk is transferred to the holders of the abs. this so - called originate - and - distribute business model of banking has come under severe criticism in the course of the crisis. covered bonds are crucially different as the credit risk remains with the issuing bank, preserving the incentives for prudent risk monitoring. the term auction facility ( taf ) and the primary dealers credit facility ( pdcf ) served to broaden access to cb facilities, as before the crisis regular open market operations had been conducted with 20 investment banks, the primary dealers, only. basically treasury bills and bonds. when this proved too restrictive, both created swap facilities where banks could exchange previously ineligible securities, e. g. corporate bonds, against government securities ( fleming et al. 2009 ). in the euro area such programs were not necessary, as the eurosystem already accepted a wide range of publicly and privately issued assets. to sum up, the different measures often reflected different starting points. overall, operational frameworks converged in many dimensions towards the ecb standard. 7 2. 4. 2. structural differences between the us and the ea financial systems turning to the more downstream segments of the transmission channel, policies differed again. here the main reason lies in the profound differences how households and in particular firms are financed in the euro area and in the us. the euro area economy is to a large degree financed through banks. bank financing accounts for 145 % of gdp in the euro area while only slightly above 60 % in the us. in the us, market - based funding sources like shares and bonds amount to more than 300 % of gdp, more than double the share in the euro area ( ecb 2009a ). the importance of banks is underscored by the key role played by small and medium - sized enterprises ( smes ) in the euro area. typically these are too small to access financial markets. while in recent months some large companies have switched from bank to market based finance to circumvent bottlenecks in bank financing, smes are excluded from this alternative funding source. a second structural difference that influenced the design of the policy response is the relative importance of housing for the us economy, both in general as well as in the current crisis. in the us declining house prices have been the trigger for the crisis and have been an important drag on household balance sheets and consumption. in europe, housing has played a much more minor role. figure 3

provided a buffer, allowing even liquidity constrained banks to provide new lending or at least to roll over existing loans. figure 5 : funding sources of euro area credit institutions by counterpart sector ( three - month flows ; eur billions ) source : ecb. further down the transmission mechanism, it was important to see that lower money market rates have fed through to lending rates paid by households and firms. the pass - through typically takes some time to materialize. evidence on lending rates so far suggests that the historic relationship between money market rates and lending rates has continued to hold ( ecb 2009c, jobst and kwapil 2008 ). as a result rates on new loans for house purchases and to non - financial corporations have come down broadly in line with reductions in the policy rate, providing some needed stimulus to investment and consumption ( figure 6 ). figure 6 bank lending rates in the euro area in % households consumption households other purposes households housing non - financial companies < 1 million eur non - financial companies > 1 million eur 01 / 07 04 / 07 07 / 07 10 / 07 01 / 08 04 / 08 07 / 08 10 / 08 01 / 09 04 / 09 source : ecb. another market, where a calming influence of central bank policy can be documented, is the international market for us dollar. over the past decade european financial institutions had built up a structural shortage of us dollar ( mc guire and peter 2009 ) and depended heavily on fx swaps. with the onset of the turmoil in the money markets in august 2007, the imbalance between us dollar demand and supply and the perceived counterparty risk of european banks led to illiquidity and marked deviations from covered interest rate parity, i. e. the implicit usd interest rate paid in fx swap contracts came to exceed the onshore usd rate significantly ( baba et al 2008 ). the failure of lehman led to a global scramble for us dollar. the swap lines established in a joint action by the fed, ecb, snb and boe contributed to calm the foreign exchange markets, reducing deviations from covered interest parity by about 30 basis points, which is quite considerable given that average deviations at the beginning of 2009 were about 50 basis points ( baba and packer 2009 ). finally, the newly inaugurated covered bond purchase program equally seems to bear first fruits. the announcement of the ecb program in may 2009 has led to a significant pick - up in the primary market that had seen only few