rate instrument. as a consequence, communicating exit strategies is more complex than in previous tightening cycles. at the ecb, the exit is made easier by the policy instruments used. security holdings of the smp will be held until maturity. excess liquidity is sterilised with reverse operations. banks can pay back long term loans before maturity as market conditions normalise. at the same time, the ecb remains ready to act if conditions deteriorate. the new role of central banks in preserving financial stability is another challenge. following the crisis, the prevailing view suggested to as - sign new powers to central banks, in the form of stronger involvement in bank supervision and macro - prudential policies. some observers argue that conflicts between financial stability functions and the primary goal of preserving price stability might emerge. to safeguard the credibility of the monetary policy function and of the supervisory function we will adopt a governance structure that strictly separates the two. and the hierarchy of goals is clearly set and communicated at the ecb : our primary objective is and will remain price stability. for example, a central bank might find itself in a difficult situation if an interest rate hike necessary to avert risks to price stability would at the same time impact adversely on some banks. allegedly, this could undermine the credibility of the central bank. in this context, communicating clearly and designing appropriate institutional frameworks is crucial. we in europe are very much aware of these challenges. at ecb, the preparation of the single supervisory mechanism ( ssm ) is progressing. the asset quality review of banks to be carried out before the ssm becomes operational will ensure that “ hot potatoes ” will not be handed over to the ssm. to complement the institutional architecture, we also need a strong commitment towards an effective single resolution mechanism, along with efficient and credible backstops. the latter two elements are a necessary complement to the ssm and will ultimately increase its credibility. bis central bankers ’ speeches finally, threats to credibility and independence might also make the job of central bankers more difficult. central banks have fulfilled their man - dates and proven successful through their measures and interventions. as a result of the earned credibility, politicians and the general public have now higher expectations as to central banks ’ ability to manage crisis and the economy. this might overburden central banks and make them more involved in sensitive areas. the new challenges and complexities of today ’ s environment make clear that communication strategies will play an increasingly important role in the dialogue between central banks and markets

jorg asmussen : the global monetary policy stance – what are the risks? speech by mr jorg asmussen, member of the executive board of the european central bank, at the bruegel annual meeting, brussels, 10 september 2013. * * * dear chairman, dear ladies and gentlemen, the recent years have been challenging for monetary policy makers around the world, including in europe. the economic and financial crisis that broke out in late 2008 turned central banks into “ unconventional ” market players and forced them to be creative. since 2007, central banks have adopted a wide range of unconventional policies to repair the transmission mechanism and provide additional accommodation at the zero lower bound. these policies have been different across economic areas and depended on central banks ’ operational frameworks, mandates and country specific challenges. within our mandate, we at the ecb, at the be - ginning under the leadership of jean - claude trichet, acted strongly to prevent a credit crunch and reduce financial fragmentation in the euro area : • we provided unlimited liquidity to banks, extending the maturity of our operations to 3 years, and allowed our collateral rules to adjust to the new environment. these measures prevented a more severe contraction in credit and reduced divergences across countries caused by bank funding risk. • we introduced the outright monetary transactions ( omt ) to remove financial fragmentation caused by currency redenomination risks that had surfaced due to unfounded fears of a euro break up. the omt has calmed markets leading to significantly improved financing conditions. as a result, target 2 imbalances have declined by 1 / 3 since their peak. let me also say that the omt is a policy for the euro area as whole. by reducing financial fragmentation, the omt contributed to the normalisation of those yields that were excessively compressed by market fears. while unconventional monetary policy actions were necessary, we also need to pay attention to the related risks. let me briefly discuss them together with broader challenges for monetary policy. one risk is complacency. monetary policy can only gain time for other policy makers to tackle structural problems. this is particularly important in europe where governments need to continue implementing structural reforms to boost growth potential and employment, especially among the youth, to consolidate public finances, and to strengthen domestic banking systems. another risk relates to the side effects of globally low yields, which has already been widely debated in international fora. risks of capital misallocations, stemming from low risk premia and yields, are not confined