The persistence of difficulties in the term money market, despite the existence of sufficient aggregate euro liquidity, points to an important limitation for public policies (and expectations about such policies) in the current environment, namely that central banks cannot and should  1  I am very grateful to Ulrich Bindseil, Cornelia Holthausen, Isabel von Koppen-Mertes, Flemming Würtz and Alessandro Calza for their valuable input and contributions, and to Giacomo Caviglia and Pedro Teixeira for useful comments. BIS Review 143/2007  1  not be expected to solve the more fundamental problems of commercial banks and credit markets. Through their liquidity management policies, the ECB and other central banks can certainly ease some of the liquidity difficulties faced by banks, but they cannot certainly restore the efficient functioning of the term money market. The current difficulties in this market will subside only when banks regain confidence in each other and the uncertainty about their own liquidity needs diminishes. This is likely to occur only when enhanced transparency and more extensive disclosures are made available to market participants, investors and regulators by both banks and non-regulated entities, thereby dispelling the current state of perceived opaqueness and uncertainty. The market turmoil and available information Let me now address another key aspect of information during the recent turmoil. Policymakers normally work under conditions of partial and incomplete information.
So, to conclude on the moral hazard topic, I would say that, in order to draw meaningful conclusions, it is important to distinguish between the very different possible types of financial crisis management measures available to central banks. When assessing and choosing among these different measures, it is necessary to take into account the implications for both the central bank and for its counterparties, including the future incentives of the latter, in order to achieve, overall, the most efficient allocation of resources. BIS Review 143/2007  7  Separation of liquidity management and the monetary policy stance Finally, a frequent focus of our communication during the turmoil has been the importance of distinguishing between interventions related to liquidity management and changes in monetary policy stance. It is very important for the public to understand that the implementation of technical measures related to liquidity management during the current turmoil has been completely separated from any considerations on the monetary policy stance. Contrary to the occasional public perception, these operations have had no effect on the overall liquidity supply to the banking sector. Overall, the amount of liquidity provided within the various maintenance periods since the start of the turmoil has remained unchanged. Instead, the liquidity provision has been to some extent simply brought forward in time within each period, thereby simply representing a shift in the time path of liquidity supply within the reserve maintenance period.