PEPP – a flexible instrument to fight the crisis within our mandate I would now like to take a closer look at the legality of our most far-reaching and exceptional monetary policy decision, the launch of the PEPP. Let me first look at its features. The PEPP was established to act first as a backstop to potential market disruption. In short, it 1/5  BIS central bankers' speeches  has had a stabilising effect to counteract the market fragmentation that was unwarranted on the basis of the underlying economic fundamentals, and to safeguard the transmission mechanism. The PEPP also reinforces the ECB’s monetary policy stance. In so doing, the PEPP is a direct and targeted response to an “extraordinary and acute economic crisis”1 and aims to ensure the ECB’s ability to fulfil its mandate under the circumstances. Notably however, “Due to these exceptional, fast-evolving…circumstances, the PEPP requires a high degree of flexibility in its design and implementation” as set out in the Decision implementing the PEPP.2 Purchases under the PEPP continue to be guided by the capital key of the national central banks as for the APP. But the PEPP allows for fluctuations in the distribution of purchases over time, across asset classes and among jurisdictions. This flexibility has allowed us to effectively stave off risks to the smooth transmission of monetary policy. In view of the pandemic’s exceptional nature, we decided not to apply to the PEPP the same selfimposed public purchase limits that apply to the sovereign purchases under the APP.
Some banks that might want to make such loans may lack the knowledge of how to make small loans and package them appropriately. The other challenge lenders have to work with in assessing SMEs for them to access credit is the lack of reliable data. For example, data on the share of bank credit to SMEs are almost non-existent in Zambia. Even in banks where credit data are available from credit registries, in most cases they do not include information about the size of firms. Any estimates regarding the share of credit to SMEs have to rely on proxies, such as the size of loans. BIS Review 79/2008  1  Mr Chairman, it is clear that lending to SMEs is different from lending to large firms. In the case of young firms, it is more difficult to acquire information. Moreover, given the small size of the loans, it does not pay for the bank to undertake a detailed review of the creditworthiness of SMEs. Thus, for SME lending to be profitable, banks must experiment with new approaches and technologies for risk assessment and loan management. Such experimentation produces positive externalities by generating knowledge that is difficult for the bank to keep for itself, since trained agents can leave the bank to work with competitors. The other benefit we get from SMEs is that when there are adverse shocks in the market, their small size and flexibility allow them to speedily adjust to market changes.