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He structured his speech in the following three areas:
1. Main steps taken by the Eurosystem in response to the crisis
González-Páramo maintained that the unconventional policy taken - known as “enhanced credit support” - consists of four different kinds of measures:
· Full allotment and increased maturity of the Eurosystem’s refinancing operations
· Provision of liquidity in foreign currencies
· The expansion of the list of assets eligible as collateral
· Outright purchases of covered bonds
Compared with measures taken by other central banks, the measures implemented by the Eurosystem were specifically targeted at the banking sector. The reason for concentrating on the banking sector stems from structural features of the euro area’s economy, particularly the fact that its financial system is predominantly bank-based. Indeed, bank loans account for a much larger share of financing to households and firms in the euro area than in the United Kingdom or in the United States, where non-bank financial institutions and capital markets provide important alternative sources of funds.
2. Impact of Measures Implemented by the ECB
The expansion of the Eurosystem balance sheet was driven both by changes in the so-called autonomous factors, as well as by the introduction of non-standard measures. On the liability side, banknotes and government deposits have steadily increased during the past two years: banknotes changed from around €600 billion at the beginning of 2007 to €768 billion at the end of October 2009, while government deposits over the same time period went from around €50 billion to €140 billion.
Concerning the impact of the change of allotment procedure and increase of maturity on our open market operations volume, the outstanding amount of long-term refinancing operations - i.e. operations with a maturity of between 1 and 6 months - increased from €150 billion in June 2007 to over €600 billion at the end of 2008. Over the same period the total amount of outstanding refinancing operations has almost doubled, peaking at €850 billion on 2 January 2009, and currently standing at €672 billion.
3. Preparation for phasing-out from Non-standard Measures
The ECB’s monetary policy continues to provide substantial support to the availability of liquidity and the recovery of the euro area economy. Looking ahead, as conditions in the financial markets normalise further, not all our liquidity measures will be needed to the same extent as in the past. Accordingly, the Governing Council will make sure that the extraordinary liquidity measures taken are phased out in a timely and gradual fashion, and that the liquidity is absorbed in order to counter effectively any threat to price stability over the medium to longer term.
The financial crisis has presented central banks with exceptional challenges for supporting the functioning of money markets and the funding liquidity of banks, stabilising economic activity and preserving price stability. The ECB responded swiftly to these challenges by engaging in non-standard monetary policy and aggressively cutting policy interest rates.