Market funding came to a sudden stop for many financial institutions. The ECB’s response was to lower its main refinancing rate to the then record low of 1% in May 2009, to expand the range of eligible collateral for our refinancing operations and to provide liquidity elastically to the banking sector, at both increasingly long durations and against a wider range of collateral.
The second phase was the sovereign debt crisis of 2011–12, which was intensified by the banksovereign nexus. Bank funding markets fragmented along national lines and banks in vulnerable countries lost access to wholesale funding. It led to a serious disruption of the monetary transmission mechanism and prevented our accommodative policy stance from reaching the economy. Our policy response was twofold.