The ECB’s monetary policy in the crisis * In 1763, Amsterdam was the centre of a deep financial crisis. Highly leveraged investors were faced with a situation of falling asset prices. The liquidity crisis became severe and Amsterdam bank houses went bankrupt. * Similarly liquidity was an issue in the modern day financial crisis. Money markets seized up and several market participants found themselves unable to roll-over funding positions. * Finally, at the beginning of 2010 the latest turn: several euro area countries’ debt and deficit levels were found to be unsustainable. * Differently from the crisis in 1763, the determined actions of central banks prevented deleveraging, fire sales and ultimately deflation. * The ECB, and indeed all major central banks, reduced its policy rates to unprecedented lows and implemented various measures to restore monetary policy transmission to support credit flows to the real economy.

* Liquidity support gives banks unlimited access to central bank money at a fixed price against adequate collateral for banks to liquefy their assets at times of stress by expanding the set of eligible assets used as collateral. * Also extending the maturity of lending so that the longest maturity of our long-term refinancing operations (LTROs) has been raised from the standard 3 months before the crisis to 6 months after. * The Outright Monetary Transactions (OMTs), eliminate the pricing of un-warranted tail risks in the bond markets. OMTs entail interventions in government bonds with a remaining maturity of up to three years. * OMTs have a number of characteristics: * The government concerned must accept a programme involving support by the European Stability Mechanism that entails strong and effective conditionality. * By preserving monetary policy independence. Interventions would