Such confidence between banks was apparently eroded by the concerns regarding exposures to US sub-prime mortgages and the implications of the resulting liquidity squeeze on banks’ ability to meet their short-term obligations. Through its liquidity policy, the ECB attempted to support the smooth functioning of the money markets by bolstering the confidence of market participants in the system as a whole.
And on this basis they can secure the effectiveness of their monetary policy. Closing remarks Fellow central bankers, I am sure that this week's seminar will provide an opportunity for lively discussion on the most desirable ways for central banks to tackle the stagflation threat, particularly when financial markets are in turmoil as they are today.