On 6 and 7 May [...] the markets were massively disrupted, and market participants all over the euro area and the rest of the world observed this situation, which was deteriorating extremely rapidly. This was a very serious situation, in which we had to intervene in order to preserve [...] the integrity of the monetary policy transmission mechanism.
We all don't know what would have happened to the interbank and bond markets without this consensus. But it's plausible to assume that the market sentiment would have been severely affected which might have led to a evaporation of both market and funding liquidity.
And it's also wrong to blame banks for betting on the Greek default. The underlying problem is several years old. The ECB collateral framework treats government bonds of Eurozone members equally. They are subject to same-sized haircuts despite of their different ratings. Hence, Greek and e.g. German bonds were perfect substitutes for ECB refinancing operations. Therefore, the incentive to distinguish in terms of credit quality was weakened. I guess, some banks were even happy to pick a few basis points extra yield on holding Greek bonds instead of German ones. Willem Buiter and Anne Sibert already pointed to this problem in 2005. When spreads began to widen after the Lehman default, the secondary market for Greek bonds didn't work well any more. So banks probably weren't able to reduce their physcial exposures. This could partly explain the dramatic increase of the CDS prices, as banks might have started to demand protection. But that's speculation, which is - as we are extensively told in these days - evil.
