aro Op
Presiers
‘Me Michael MeGeath TO
DAilEreann
[Lenster House
‘Dubin
‘Repub of eta
Franktut am Main, 18 Deziiber 2014
Re: Your letter dated 19 September 2014
Dear he Metab,
“Tank you fr you ler, Belore outing some of he ECB's considerations, lot me fet stress that
the Cena Bank of Ireland and ts govema, Me Honohan, shoud be the primary interact fr
Member of Oil Erean whan comes tothe monetary palcy conducted bythe Eurosyster, just
‘8 the President of the ECB isthe primary inleocutor for Members ofthe European Fariament on
these mater.
‘This nowitstandng, kt me provide you wih some comments in response tothe cancems you
‘expressed about he inerest ate constlaion in ketnd, a pareuar egarcig loans to households!
‘and sma and medium-sized enterprises (SMES)
Lending interest rates may difer across bank fr mary easons, incuing rskpremia the state of
the business cycle andthe stuation proving nthe respective banking syst. Wile the ECB has
no direct impact on sich factors, enurng 8 smeather functoning of manetiry urien should affect
‘tem ina postive manrer.
|As regards the fle of the ECB, ts Governing Counc ~ in pursuing its prce stabity mendate —
besides reductions in he main polcy rates decided on a combination of monetary policy measures
at ts June and September 2014 moetngs wt a vew to enhancing the functioning of the monetary
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oste rank ami, Seman mat ees presdenecs europa 0spokey tranemision mechenism by supporting lending fo the real economy These measures inc de
targeted longerterm refnancing operations (TLTROS), ouight purchases in the asset-becies
securities markt (the ABS purchase programme) and a new covered bond purchase programme
(CPPS). Restoring a funetoning ransmison mechanism, notably for bank endings strumextal
in ensuing that the monetary poey stu that hasbeen introduced reaches the Fra borrowers
‘an, thereby, supports real incomes, spending and price formation. As a package, these measures
bong tothe tration of unconventional monetary polices known as cre easing, Nevertheless,
shoud be keptin mind thatthe ECB's scons are solely motvated by the need o atan monetary
poly objectves. The ECB does not tere wih the normal acy of commercial banks in pring
leans.
‘ther factors wa also hep reduce nancial fragmentation, suchas the set-up of he Banking unt.
We alto expect the station to improve futher folowing the successful completion of the
comprehensive assessment which hs the potential o reduce the fapmectaton nthe bank fencing
‘channel over the medium term as markt perceponsreparcing euro area banks improve andthe
price discovery mechanism functons ecient throughout tne fnancial system,
Final, the crisis hes painfuly revealed he economic hardship citizens have fo face when sucha!
‘gies have not been resolved in @tmaly and foresul manner. Removing these rigidities snot
merely ina county's own intra, but loin the interests of he monetary union as. a whole
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