market value of equity in europe had fallen by eur 3. 65 trillion, or 45 %, from its previous peak in july 2007 until late may 2009. 2 finally, with regard to the economic cost of the crisis, one simple but encompassing measure is the aggregate output lost due to the recession that was triggered by the financial turmoil. in the euro area, the cumulated output loss from the second quarter of 2008 ( when growth turned negative ) the total potential writedowns on the assets of global financial institutions ( including banks pension funds, insurance companies and hedge funds ) over the period 2007 - 2010 have been estimated at usd 4. 1 trillion, of which about two thirds ( usd 2. 8 trillion ) are expected to be borne by banks ( see international monetary fund ( 2009 ) ). these estimates, which include future potential writedowns until the end of 2010, are based on a number of projections of future economic activity and assumptions about asset market developments, and estimates of the likely impairment charges on loans. they are, therefore, subject to a substantial margin of error. figures based on s & p european 350 index. it should be noted, however, that this index has recovered significantly since march 2009 ; market capitalisation rose from €3. 39 trillion on 9 march to €4. 55 trillion by 26 may 2009. until the first quarter of this year, amounts to 5 % of gdp, which is equivalent to about eur 400 billion. 3 in order to mitigate the effects of the crisis on the financial sector and the real economy, governments and central banks have taken strong and decisive action. indeed, in many cases they have implemented measures that are extraordinary in size and scope. as a central banker, i will concentrate in my remarks on the role of central banks – and of the ecb in particular – in dealing with the current financial crisis and establishing conditions that support the economy ’ s recovery and return to a path of sustainable growth and price stability. in particular, i will address the following issues : • first, the available central bank policy instruments in managing a financial crisis and the rationale for the measures actually taken ; • second, the effectiveness of the ecb ’ s policies in promoting the orderly functioning of money markets, in fostering the provision of credit to firms and households, and, more generally, in countering the effects of the crisis on the financial system and the broader economy ; • third, the role and effectiveness of other policies – notably the government measures to

purchases and guarantees during the period 2007 – 2011 amounted to nearly $ 5 trillion. this is equivalent to 16 % of the gdp of these economies, or nearly $ 5, 000 per citizen. 2 but, this is only a lower bound of the cost of the crisis. if we also include the impact on gdp and the loss of production relative to its pre - crisis trend, the costs rise. this has been showed by several studies, including the one just mentioned by imf economists, which estimates that banking crises that occurred between 1970 and 2000 are resulting in output losses of more than 20 % on average if we look at all countries, and more than 30 % of gdp in advanced economies. 3 these results are in line with the bis finding that the median discounted cumulative loss of output over the course of a crisis in the same period was about 19 % of pre - crisis gdp. 4 now, the question of exactly how much regulation leads to the optimal outcome in terms of long - term growth is, of course, debatable. but let me underline that ambitious attempts have been made by the bis, but also the oecd and others, to assess the net effect of recent regulatory reform measures, and the results generally point in one direction : that the net effect of reforms is positive. in addition, let me also underline that the basel committee has not been blind and deaf to the worries expressed by the industry about excessive regulation. many adjustments have been made, not least when it comes to the new liquidity regulation. it is also standard procedure that new regulations are subject to industry consultation and in many cases additional discussions also take place with the industry itself, as well as with investors, to avoid unintended consequences. in this context, however, let me remind us all that the reactions we get from the banking industry are sometimes slightly biased, if i dare say so. a telling example is the lobbying effort during the design of the basel ii framework. as part of that work, in 2003 the committee consulted on a new securitisation framework, which, with the benefit of hindsight, turned out to be very weak. yet the comments from the industry on the proposed securitisation framework were in general quite alarming. allow me to quote just a couple of the replies to the consultation proposal that the committee received ( all of which are publicly available ) : • one bank wrote : “ the prescribed risk weightings for securitisation exposure ( s ) …