- based in nature and postulates that monetary stability is a necessary and sufficient prerequisite for ensuring financial stability. the latter would then be a welcome consequence of the implementation of an inflation targeting strategy, which consists in only responding to shocks that have a lasting impact on medium - term price stability. here again, the argument does not hold up in the face of the facts since the financial crisis unfolded in an environment of low interest rates and contained inflationary pressures in spite of soaring property and commodity prices, in short, in a context where price stability seemed well secured. the same was true for the previous bubble that formed on stock markets. a low interest rate environment, which often makes agents less vigilant about risk or makes them less able to gauge it, combined with very strong central bank credibility, is in no way a guarantee of financial stability. this is one of the manifestations of what some economists have termed the paradox of credibility. - the third argument relates to the extraordinary transformation that our financial systems have undergone over the past few years, with a growing, if not predominant, role for market financing at the expense of bank intermediation. yet the operational framework of central banks, by means of which they perform their role of lender of last resort, is mainly focused on banks, and retail banks in particular. here again, the facts prove the opposite. the crisis has shown that banks remain at the heart of the financial system and that, as a consequence, the operational framework of central banks remains entirely effective. in addition, this framework makes it possible to reach other market participants, such as brokerdealers and investment banks. 2 ) what have central banks done since the start of the financial turmoil? the overall impression in the press is that central banks have injected vast amounts of liquidity into the banking system in order to face up to the crisis. this is not true to reality. in volume terms, the amount of liquidity allocated by the eurosystem has posted slow growth since the summer of 2007. on the other hand, during the crisis, some central banks, such as the fed and the bank of england, have had to make adjustments to their operational framework, while others, like the ecb, have been able to rely on their existing framework, up until very recently. this has resulted in a remarkable convergence of central banks ’ operational frameworks and fields of intervention around four main areas : - a lengthening of maturities for central bank lending : these maturities

banking supervisors have close ties with the central bank, has once again proven its worth in the current context. the necessity of this proximity has also been increased by the new accounting and prudential standards which have proven to be pro - cyclical and in which liquidity and solvency are intertwined. in this context, when in a financial crisis, it is crucial to cross - check, at every moment, information on the evolution of banks balance sheet and data on money market functioning in order to assess the risks to financial stability. such an assessment enables to adapt, as far as needed, the refinancing policy of the central bank, in order to alleviate tensions in the market ; those tension being a threat both to financial stability and to the effectiveness of the transmission of monetary policy. - second, with regard to monetary policy, let me reiterate that one must carefully distinguish between the monetary policy stance on the one hand, which should remain focused on the macroeconomic objective of price stability in the medium term, and the refinancing conditions of the banking system on the other hand, that may have to be adapted in times of financial turmoil. moreover, a solid anchoring of inflation expectations seems to me particularly crucial in a period of economic and financial uncertainty. - last but not least, in my view, regulatory issues related to the increase of financial innovation over the recent period of rapid market growth should now be a matter of primary concern. moreover, the return of greater market discipline, closer monitoring of risks by market participants and quite simply the use of commonsense principles, such as acknowledging that there is no such thing as low risk / high return assets, are in my view prerequisites for a return of confidence to the markets.