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Trichet: Responding to the crisis; repairing the system; the need for global regulation

Exclusive Trichet interview: It is time for banks to start lending again

Q: At what specific moment did you realise that we were in a financial crisis of unprecedented magnitude?

A: On August 9, 2007 we were the first central bank to identify that we were starting to see a hugely turbulent period as a consequence of abnormal behaviour in financial markets. That day we lent €95 billion for 24 hours to the market at a fixed rate.

Before this, we had said publicly already back in 2006 – as did other central banks – that global financial markets were under-assessing the quantity of risk and underpricing the unit of risk, so that there was a need for a correction. By saying that, we tried to prepare markets so that the coming change would be as smooth and efficient as possible.

Q: What for you has been the moment of greatest danger to the financial system?

A: First, we saw the striking widening of spreads in the money markets starting in summer 2007. We could see that this was more than an abnormal short episode and that it had no recent equivalent.

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