BIS Review 81/2010  1  Conversely, the fiscal position can affect the banks, and we have seen this recently in Europe with heightened market concerns about the fiscal situation in some countries have spilled over to banks and sovereigns, in turn hampering the transmission of low monetary policy rates throughout the euro area.
Frozen interbank markets reflected what seemed an overblown response to perceived fiscal risks. We’ve seen an extensive policy response to tackle this. Not only quite sharp fiscal adjustment measures, but a huge commitment of public funds – some € billion, which is huge in relation, for example, to the outstanding stock of debt in the countries affected.