In practice, this principle implies that the ECB does not use its key policy rate as an instrument to mitigate liquidity stress, to prop up the balance sheets of financial institutions or to support asset price valuations. If agents believed that the ECB was prepared to do so, investors would probably engage in excessive risk-taking behaviour, thereby sowing the seeds of future financial crises.
More fundamentally, if the ECB was perceived as assigning higher priority to supporting the financial sector or asset prices than to safeguarding price stability – its primary statutory objective – inflation expectations could be adversely affected and even become disanchored. 3  3  6  See S. Sauer (2007), “Liquidity risk and monetary policy”, University of Munch Discussion Paper 2007-27.