In times of financial panic, banks and other financial intermediaries shed risky and illiquid investments and rush to liquidity. In the process, banks’ intermediation is reduced, and loans to companies are curtailed. If the process is allowed to unfold in a disorderly manner, it can create severe damage for borrowers and for the broader economy.
The ECB was among the first central banks in the world to recognise the severity of the situation as early as August 2007, when the turmoil began. It took actions well before a number of other central banks – to be precise: on the very first day the turmoil erupted.