It has also provided ample liquidity to the banking system, as shown in Chart 7, in which the red lines represent the rise in the monetary base (which consists mainly of central bank provision of bank reserves). However, as I have noted on previous occasions, a large part of this liquidity has been deposited back with the ECB, as reflected in considerably slower growth in loans (the blue lines). This is an indication of the hesitancy on the part of the banks to buy securities, or to extend loans, whether to other banks or to the non-financial sector. Some concern has been expressed about the size of the build-up of liquidity across various economies that could be mobilized by the banks in the eventual post-crisis expansion of loans. However, it must also be noted that the excess liquidity can be eventually reabsorbed by the central banks. In any case, it should also be noted that the provision of additional liquidity by the ECB (as shown by the red lines in Chart 7) has been somewhat more moderate than is true for other major central banks such as the Federal Reserve, as shown in the chart. The ECB has now gone a step further by announcing an Outright Monetary Transactions programme, designed to repair the link between policy rate cuts and ample liquidity provision, on the one hand, and lower borrowing costs, on the other.
The quality of human capital has to evolve to meet the changing needs of both the domestic and export markets, and for that purpose the educational system must provide the required skills and qualifications profiles. For productivity to maintain its upward trend there must be a continuous upgrading of current investment and a stream of new investment to maintain the necessary structural change to higher value added activities. As I have emphasised in various parts of this presentation, the financial sector plays a crucial role in maintaining the momentum of change in the economy and meeting the financing needs of an evolving economy. In addition it is also a sector of expansion in itself, with its own dimension to the contribution of further growth. Current financial stresses in the euro area will also require updating banking business models and ensuring that new regulatory requirements are met. Prudent banking practices remain a cornerstone of our present stability in a period of heightened international financial stresses and strains. Thank you for your attention. BIS central bankers’ speeches  9  10  BIS central bankers’ speeches  BIS central bankers’ speeches  11  12  BIS central bankers’ speeches  Chart 7  Chart 7 (cont)  BIS central bankers’ speeches  13  14  BIS central bankers’ speeches  BIS central bankers’ speeches  15  16  BIS central bankers’ speeches