Many policy initiatives have already been taken in this respect, ranging from the establishment of “bad banks” to injections of capital and government guarantees’ for bank debt. Of course, the liquidity policy of the Eurosystem has played a crucial role in supporting the financing of the overall economy since August 2007.
At the same time, viewed from a longer-term perspective, effective regulation has a key role to play in strengthening the financial system. Currently envisaged changes in the regulation of banks aim at making banks better internalise the cost of their risk-taking and impose heavier capital charges on their riskier positions.