10  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  10  Table 1: Lessons from the dash for cash for future market dysfunction tool design  Standing liquidity facilities for banks  Special market wide operations using large scale asset purchases and other preexisting tools  Positives  Challenges  Future design questions  Regular, well understood  Banks did not meet all nonbank liquidity needs – so not a fully effective conduit for central bank liquidity  Whether central banks need the ability to reach a wider range of market participants directly (and, if so, who)  Operations typically one way (‘buyer of last resort’) and much longer duration than the dysfunction  Whether there should be more targeted two-way or selfliquidating tools better aligned with term of dysfunction  Operations conducted using tools also aimed at easing monetary policy  How to deal with market dysfunction in periods when the optimal policy response differs from that required for monetary policy purposes  Operations were ad hoc or discretionary  Whether more permanent standing facilities might better shape expectations  Effectiveness – ‘got in all the cracks’  No explicit ‘insurance premium’ in facility pricing – risks fuelling moral hazard if expected to prevail in future  Whether to adopt Bagehot pricing/terms: eg buying at below pre-stress prices but above stress prices and/or pricing / haircuts  Took risk off private sector balance sheets  Added risk to public sector balance sheets  How to judge appropriate risk sharing, and set bounds on public sector exposure  Ability to ‘go big and go fast’ necessary in the face of the Covid pandemic  The first is that central banks are likely to face increasing calls to provide public liquidity insurance for instances of severe financial market dysfunction in the years ahead, as the reliance on those markets grows, vulnerabilities to liquidity shocks persist, and intermediation capacity remains constrained.

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).