Such problems have been encountered in Western market economies. It is clearly in Hungary’s interest to build up, or consolidate, the appropriate defences against the emergence of such problems. BIS Review 16/1997  -6-  5. In order to avoid any misunderstandings, I am not launching any appeal in favour of overregulation. In a market economy, the best regulator is the market itself. And when spontaneous market regulation fails - which does happen - the second-best solution is to use regulatory techniques which favour the emergence of market-led self-regulation. I am simply trying to make two points. First, that banking and finance have broader and more general implications for the economy as a whole than any other kind of activity. A crisis in, say, the steel industry creates hardship, but it does not create a general crisis. A banking crisis may well do so. Second, banking and finance are evolving at a very fast pace under the combined influence of technological progress, innovation and globalisation. This needs a careful adjustment of the regulatory framework, not its general weakening. 6. In a very different area, may I call your attention to the need to develop both retail banking in the narrow sense of the term and also banking services to the dynamic sector of small and medium-sized enterprises. In these fields, Hungarian banking is vastly underdeveloped, both in the number of consumer-friendly local offices and, even more importantly, in the range of high-quality banking services offered to these two groups of customers.
But from the onset of the crisis in August 2007, the ECB took swift and decisive action to provide liquidity in the interbank money market in order to alleviate the stresses and ensure, to the maximum extent possible, that liquidity problems would not turn into solvency problems, and that systemic risk would be effectively contained. During this first phase of the crisis, the Eurosystem engaged in active liquidity management adjusting the intertemporal distribution of liquidity provision within the reserve maintenance period, but without changing the total supply of bank reserves over the entire maintenance period. At the same time, the maturity profile of the refinancing operations was altered, but the overall supply of central bank money was kept broadly unchanged. As a result, between the end of June 2007 and the end of September 2008, the balance sheet of the Eurosystem increased only moderately by about 100 billion euro. 4 Therefore, for more than a year since the eruption of the financial market turmoil, the unfavourable combination of, on the one hand, persisting and increasing inflation risks and, on the other, substantial stresses in the financial systems and risks to its stability required a “separation” of the monetary policy stance from the management of liquidity. The former was defined so as to achieve the primary objective of preserving medium-term price stability. The latter aimed at, and was effective in, mitigating pressures in the money market and tensions in other financial markets, as measured, for example, by CDS spreads and corporate bond risk premia, which gradually eased.