The evolution of the Eurosystem’s monetary policy operations in response to the crisis featured all these activities. Our risk management framework has evolved accordingly, guided by our stable principles. First, the “gusty winds”: during the early stages of the financial crisis, we increased the amount of liquidity we provided to the banking system without tightening the risk control framework, despite the onset of stress in the system. In this respect, our risk management framework followed a through-the-cycle approach – thereby avoiding further distress to the banking system. It also stood in stark contrast to the more pro-cyclical nature of the commercial banking sector’s risk management approach – and was thus part of the central bank’s duty to lean against such potentially self-reinforcing winds. It was possible to avoid tightening the framework without exposing the Eurosystem to undue risks because the pre-crisis framework had been calibrated in a sufficiently prudent manner. In fact, the framework proved to be robust enough to protect the Eurosystem from losses resulting from counterparties defaulting, such as Lehman Brothers or the Icelandic banks – although the complexity of the collateral in some of these cases led to lengthy liquidation processes. This experience certainly merited a careful review of the collateral rules for complex securities and financial innovations. More broadly, it justified taking steps towards reducing the reliance on external credit ratings, in line with the G20 agenda.
In parallel, it will continue to regularly reassess the need for an adjustment of the CCyB. Page 3/3