I think this is now a conclusion shared by all Central Bankers in the world, whatever the regulatory environment they live in. An intimate knowledge of the banking sector and of different financial institutions is extremely helpful in managing periods of tensions and stress on money and credit markets. Central Banks have had to make almost instant judgment on the provision of liquidity in different forms and different maturities. There are circumstances where being able to assess the creditworthiness of market participants and the effective amplitude of their needs is of extreme help. More generally (and somehow academically), in times of crisis, the distinction between liquidity and solvency problems becomes both more important and much more difficult to make. Having, so to speak, all the cards in your hands, minimizes the risk of making mistakes. Second, as concerns the supervision infrastructure, it seems to me that clear, simple, robust and pragmatic arrangements have performed better than more sophisticated and elaborate schemes. As you know, I had myself to face a situation of acute crisis and make decisisions in real time, concerning a major, and internationally active, financial institution. At no time did I have the feeling that our current arrangements were deficient and prevented me for getting the necessary information and making the necessary decisions. As you also know, seen from a public interest perspective, we could solve the situation without any significant disturbance to capital market. Nobody knows about the future.
Yet, after more than a year of crisis, credit markets remain very fragile, normal interbank relationships have not been reestablished, and those frictions could destabilize the financing of the corporate sector, thus further threatening economic growth. With our last decision, we have given financial intermediaries full assurance that their liquidity needs will be met, in an environment of total clarity and absolute predictability. We hope that this will contribute to reduce uncertainty and restore confidence between counterparties, which is a prerequisite to a functional money market. This may depend on more than simple liquidity provision. But central bank’s ability – and willingness – to use their capacity are a major source of stability in the financial system, and should be seen as such, both by market participants and the general public. BIS Review 122/2008  1  Second, on monetary policy. We have participated in a concerted action by major Central Banks This is a major, and unprecedented, move to restore confidence, but one, I want to emphasize, fully and absolutely consistent with our mandate. It is obvious to all observers that the overall environment has dramatically changed in the last three weeks. Declining oil and commodity prices, together with stagnant activity have significantly altered the inflation outlook. Based on current conditions, we can expect "instant" inflation rate to come under our definition of price stability somewhere in the middle of 2009.