united states. one prominent example of this was the bundling of mortgages in new and highly complex financial products and their resale as new securities to third parties via global financial markets. it eventually became evident that this practice was viable only as long as house prices in the united states continued to increase. when the many years of increases in house prices came to an end and house prices started to fall, problems soon emerged, including in the euro area, as banks here were among the buyers of these securities. investors suddenly began to doubt the quality of their assets. this led to a sharp correction in prices on the financial markets, accompanied by a withdrawal of funds from the markets, leading to corresponding liquidity shortages for banks, particularly in the money market. response to the crisis from the very beginning of the crisis, the ecb has acted in a decisive manner. it has taken a number of measures unprecedented in nature, scope and timing. the ecb has provided large amounts of liquidity support to banks. by making changes to its operational framework, the ecb made sure that all solvent banks would have sufficient access to funding. when the crisis intensified in september last year, we introduced a number of new measures. most importantly, we provided banks with unlimited access to liquidity at fixed rates for up to six months. the ecb also expanded its list of assets eligible for use as collateral in the eurosystem ’ s credit operations. moreover, we recently announced further measures, namely to provide longer term refinancing up to one year and to purchase covered bonds of up to eur 60 bn. as a result of these new measures, the size of the eurosystem ’ s balance sheet has expanded by a substantial eur 600 billion and now stands at 16 % of gdp, compared with 10 % in mid - 2007. the measures taken by the ecb have eased banks ’ balance sheet constraints and thereby certainly helped to avoid a sudden collapse in the supply of credit and the emergence of a systemic crisis. moreover, in line with the substantial weakening of global demand and economic activity, inflationary pressures and risks have been diminishing. as a result, the ecb ’ s policy rates have been cut by 3. 25 percentage points since the intensification of the crisis last october. these rate reductions, together with the liquidity management measures, have had a significant impact on money market interest rates. since last october overnight money market rates have fallen even more steeply than the ecb

regulatory framework. for example, the g - sib framework currently penalises cross - border transactions within the banking union by attaching a higher systemic risk score to banks with more of such transactions. this goes against the very rationale of the banking union, as it reduces the incentives for cross - border transactions and risk diversification. the international regulatory framework should recognise the progress that has been made in the banking union and exclude intra banking union positions from the cross - jurisdictional indicators in the g - sib methodology. fourth, there are also some resolution related aspects that warrant further consideration. in particular, the allocation of internal mrel has turned out to be an area of tension between national jurisdictions. jurisdictions with a foreign bank subsidiary prefer to have a high pre - positioning of internal mrel to ensure an orderly resolution of its local subsidiary. however, this implies a certain degree of ring - fencing to the detriment of the foreign parent bank. the compromise reached by member states in the council only allows that internal mrel is 1 / 2 bis central bankers'speeches waived if the resolution entity and the subsidiary are located in the same member state, neglecting the fact that we have achieved so much in terms of joint supervision and resolution among euro area countries. to account for this progress, internal mrel waivers on a crossborder basis in the banking union should be allowed as this would contribute to continuous cross - border banking, e. g. by generating efficiency gains and promoting further integration. therefore, it should also be possible to use guarantees to replace internal mrel and allow for more flexibility in the allocation of resources within the banking union. of course, to install confidence it will be important to have adequate safeguards in place, including that there is no legal or practical impediments to the provision of support by the parent to the subsidiary, in particular when the resolution action is taken. 2 / 2 bis central bankers'speeches