This should prevent the sort of dramatic liquidity events we saw in 2008, but it is not a cure. Banks in these situations become highly defensive. The lesson of Japan in the 1990s is that once such behaviour starts, it is hard to reverse. The point of central bank efforts is to create a bridge. The follow-up actions must be swift and sizeable.
European authorities need to move decisively to contain the crisis. Measures taken must draw private capital back in, rather than merely fund its exit. Actually implementing announced measures will start to rebuild confidence. Enhancements to existing European funding facilities should be put in place. Financial reforms, including Basel III capital measures, should be implemented in a timely fashion.