BIS central bankers’ speeches  1  The banking union can therefore support our single currency and can relieve monetary policy of some of the tasks undertaken during this crisis – notably, the task to repair or, in some cases, to bypass a clogged transmission channel. The non-standard measures may then be gradually phased out, as the changes introduced in the monetary policy framework during the crisis will no longer be necessary. This should not be confused with a change in course from the accommodative monetary policy. A phasing-out of certain emergency measures is desirable, given that new market distortions might otherwise emerge. Financial fragmentation affects monetary policy The years preceding the financial crisis were very favourable as regards the integration of capital markets in Europe, with the integration of euro area money markets forming a key pre-condition for the proper conduct of monetary policy. Our policy rate instantaneously transmits to the interbank money market rates and determines the refinancing conditions of the banking sector. In this regard, the money market further transmits monetary policy impulses to other markets and financing conditions and is key to the homogenous transmission of monetary policy across the euro area. Moreover, the integration of securities and wholesale markets plays an important role for the funding of the banking sector.
While this dichotomy did not appear problematic before the crisis – indeed, the presence of national regulation was often viewed favourably as a component of a more flexible regulatory and supervisory framework in Europe, which could be more easily adapted to countryspecific conditions – it led to important deficiencies that were first laid bare by the crisis. •  The lack of a robust regulatory and supervisory framework led to the failure to identify and control an unbalanced and unsustainable expansion of credit in some countries, during a period characterised by low interest rates, abundant liquidity and easy access to credit. •  A framework fundamentally based on the national perspective was also not conducive to identifying cross-country interdependencies and the potential for spillovers, which therefore went unaddressed. •  When the crisis erupted and the vulnerabilities materialised, the framework also revealed the lack of adequate crisis management mechanisms. National supervision proved to be a major obstacle towards a more efficient management of the crisis, leading to a serious setback in the process of financial integration. Monetary policy in the crisis In this environment of financial refragmentation of euro area financial markets, central banks had to step in. If risks to financial stability hamper the proper transmission of monetary policy, monetary policy may be rendered ineffective, thereby impeding the ability of central banks to safeguard price stability.