Over time, and the experience of successive banking crises, LOLR has been supplemented by an extensive prudential regulatory regime, requiring banks to take greater ownership of managing their own risks, and setting quantitative minima for liquidity buffers. In short, a banking version of Chart 2.7  But while LOLR may have been primarily focused on banks, there are also historical precedents for central banks stepping in to restore broader market functioning at critical moments. In July 1914, for example, the Bank of England made large-scale purchases of bills of exchange after the uncertainty caused by the onset of World War 1 brought the market to a halt, threatening widespread contagion (the bill market was at that time the engine of global trade finance).8 The Federal Reserve took similar actions in the US Treasury bond market in 1939 (at the start of World War 2), 1958 (following a regime change in government funding arrangements) and 1970 (amidst unrest over the Vietnam war).9  By degrees, these and other actions show a gradual broadening in focus by central banks from backstopping the funding liquidity of banks to backstopping market liquidity,10 when severe dysfunction threatens financial stability. ‘Currency and Credit’ (1919) and ‘The Art of Central Banking’ (1932), by Ralph George Hawtrey. ‘Lombard Street: A Description of the Money Market’ (1875), by Walter Bagehot. 7 These tools have been further supplemented by deposit insurance, macroprudential and resolution frameworks, though these are typically more focused on solvency than liquidity considerations.

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).