6  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  6  Chart 3: Holdings in Corporate Bond Secondary Market Scheme  Source: Bank of England  The review of the Bank’s liquidity framework carried out by Bill Winters in 2012 recommended formalising the Bank’s approach to MMLR, setting out public principles under which future interventions might occur.13 Various proposals on these points had been made in the wake of the GFC, by – amongst others – Paul Tucker, Perry Mehrling, Michael Dooley and Stephen Cecchetti.14 But in the event, the Bank – in common with other central banks – chose to say relatively little in public. That reflected a number of factors, including the practical challenges of determining in advance the markets in which central banks might operate, the terms on which they would do so, and the consequences for public money. In the years that followed, the topic received little active attention, either inside or outside central banks. II)  Covid, market dysfunction and central bank interventions  The experience of Covid has changed that. This is not the place to review the actions taken by central banks since last Spring in detail: many have covered that elsewhere.15 Instead, I want to pull out a number of lessons from that experience that, directly or indirectly, can help inform future tool design. 13  https://www.bankofengland.co.uk/-/media/boe/files/news/2012/november/the-banks-framework-for-providing-liquidity-to-the-banking See for example https://www.bankofengland.co.uk/speech/2009/last-resort-lending-market-making-and-capital, https://press.princeton.edu/books/hardcover/9780691143989/the-new-lombard-street, and the papers from the 2014 workshop on ‘Rethinking the lender of last resort’ held at the Bank for International Settlements (https://www.bis.org/publ/bppdf/bispap79.pdf).

8 https://bankunderground.co.uk/2019/04/30/the-great-war-and-the-bank-of-england-as-market-maker-of-last-resort/ 9 https://libertystreeteconomics.newyorkfed.org/2020/08/market-function-purchases-by-the-federal-reserve.html 10 Ie the ability to transact in reasonable size at or close to mid-market prices prevailing prior to the trade – as discussed, eg in https://www.bankofengland.co.uk/financial-stability-paper/2015/the-resilience-of-financial-market-liquidity 5 6  5  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  5  But it wasn’t until 2007, in the foothills of the Global Financial Crisis (GFC), that Willem Buiter and Anne Sibert coined the phrase now widely used for this activity: ‘Market Maker of Last Resort’ (MMLR).11 Buiter and Sibert believed that central banks, acting as MMLR, should be ready to tackle dysfunction in securities markets relevant to monetary or financial stability, by making two way prices to buy and sell those securities, or lending against them. Risk would temporarily be transferred off dealers’ balance sheets, freeing up capacity to return market liquidity to more normal levels.12 In all other respects, they recommended following Bagehot’s principles: ie standing ready to operate at scale, but only at prices, rates and collateral haircuts that would protect public money and avoid moral hazard. Such terms, they believed, would also ensure that the central bank’s financial exposures naturally unwound as market conditions normalised, with purchased assets being sold back to the market, or repo exposures maturing. Many historical central bank operations in securities markets, including some undertaken in the 2008-9 crisis, involved one-way purchases, and hence did not have this self-liquidating feature.