commercial banks in a healthy situation was absolutely indispensable in the experience of japan at the beginning of the millennium. in the absence of such action, there is a risk that fiscal stimulus packages will simply trickle away, leaving us burdened with the full load of outsized fiscal liabilities and with no prospect of a sustained economic recovery. how far has europe advanced on these issues? with regard to financial supervision and regulation, the european union is currently preparing important decisions along the lines recommended by the de larosiere report. among other things, this report proposes a new system for macro - prudential supervision in which the general council of the ecb would play an important role. there was certainly no lack of warnings – from many quarters – before the crisis. but no mechanism or institution existed to ensure that admonitions were followed by decisive and swift action. the new european system would assign the task of pre - emptive analysis and grant the necessary authority to put risk mitigation measures into practice. with regard to the appropriate balance between near - term stimulus and medium - term stability, the euro area clearly benefits from its medium - term stability - oriented framework. it is an invaluable anchor for private sector expectations, regarding both fiscal sustainability and price stability. having proved its value in times of crisis, this framework has emerged even stronger than before. with regard to the overall support to the financial sector, i have been deeply impressed by the action plan drawn up by euro area governments and the european commission within a short period of time. this action plan and its swift implementation has confounded the sceptics who had questioned the ability of euro area governments to act in a timely fashion in the event of a major economic crisis. nevertheless, more action is urgently needed to entirely resolve the toxic asset problem. the ecb ’ s response to the financial crisis let me now turn in more detail to the ecb ’ s management of the financial crisis. when the first signs of liquidity hoarding by banks appeared in august 2007, the ecb took several measures to protect against a disorderly correction in credit. banks were not only concerned about the volume of liquidity that they could secure at present, but also about the horizon at which liquidity was expected to remain available to them. so the first thing we did was to provide banks with an insurance against future liquidity shortfalls. we lengthened the liquidity horizon for banks by expanding the share of refinancing that was

be still broadly balanced, with upside risks in the near term mainly stemming from higher than expected oil prices and indirect tax increases. however, downside risks continue to exist owing to weaker than expected developments in economic activity. the monetary analysis indicates that the underlying pace of monetary expansion remains subdued. the annual growth rate of m3 was 2. 5 % in january 2012, up from 1. 5 % in december 2011. loan growth to the private sector also remains subdued. however, its annual rate ( adjusted for loan sales and securitisation ) picked up slightly in january to 1. 5 % year on year from 1. 2 % in december. the annual growth rates of loans to non - financial corporations and loans to households ( adjusted for loan sales and securitisation ) stood at 0. 8 % and 2. 1 % respectively in january. the volume of mfi loans to non - financial corporations declined only slightly in january, following the pronounced decline in december. by contrast, the flow of loans to households in january was positive. following the signs of improvement in the financial environment, it is essential for banks to strengthen their resilience further, including by retaining earnings. the soundness of banks ’ balance sheets will be a key factor in facilitating an appropriate provision of credit to the economy. to sum up, the economic analysis indicates that price developments should remain in line with price stability over the medium term. a cross - check with the signals from the monetary analysis confirms this picture. looking ahead, in order to deliver a favourable environment for sustainable growth and to support confidence and competitiveness, the governing council stresses the urgent need for governments to make further progress towards restoring sound fiscal positions and implementing the structural reform agenda. regarding fiscal consolidation, many governments in the euro area are making progress. continuing with comprehensive fiscal consolidation and complying with all commitments remains essential. in this respect, the 2012 european semester should be used to enforce rigorously the reinforced fiscal surveillance mechanism. equally important are structural reforms to increase the adjustment capacity and competitiveness of euro area countries and to strengthen growth prospects and job creation. in this area, more progress is desirable. the governing council strongly welcomes the european commission ’ s alert mechanism report on macroeconomic imbalances and expects the proposed in - depth country reviews to actively support the reform processes under way in euro area countries. we are now at your disposal for questions. bis central bankers ’ speeches