The knock-on effects of distress at one of the current large global players would presumably be much bigger. Conclusions Let me briefly conclude, ladies and gentlemen. Central banking and payment systems are inextricably linked. Central banks all around the world are involved in payment systems and market infrastructures in many different ways owing to their roles and responsibilities in  BIS Review 130/2007  5  relation to monetary policy and financial stability. Indeed, payment systems disruptions would not only affect financial stability, but may potentially also have an impact on monetary policy implementation. Central banks have found ways of safeguarding price stability, while at the same time ensuring the smooth functioning of the payment system, by drawing a clear line between providing intraday liquidity for payment system purposes and providing credit for monetary policy implementation. Moreover, the sufficient availability of collateral is important today as a contribution of central banks to financial stability. The roles of central banks in the field of payment systems are changing in a number of ways as a result of progressing globalisation, increasing complexity, and the emergence of new players and services: •  The approach of central banks to analysing financial stability is changing. A comprehensive view of the key sources of risk and vulnerabilities facing the payment systems and market infrastructures cannot be formed without taking due account of developments at the global level, such as the emergence of cross-border payment systems and offshore centres.

The recent developments were triggered by a perception of higher credit risk originating from a perceived deterioration of the credit quality of assets held both by banks and by special  BIS Review 130/2007  3  investment vehicles, with which banks were associated either through liquidity commitments or reputation issues. The situation deteriorated when liquidity buffers of banks were put under stress by the need to meet their liquidity commitments and to take on their balance sheet assets which had become illiquid. Then, banks also became unwilling to provide unsecured lending to other banks, in particular at longer maturities, because of uncertainty whether they would themselves obtain liquidity if needed. Once this stage was reached, the deterioration of liquidity conditions became self-reinforcing, and turned out to be painfully durable, as can be seen for instance from the still exceptional three-month EURIBOR spread relative to three-month repo rates. What could central banks do about this? First, they provided extra liquidity through open market operations. This not only contributed to bringing down short-term interbank rates to target levels again, fulfilling monetary policy implementation purposes, but may also have contributed to supporting the willingness of banks to lend. Second, accepting that availability of central bank eligible collateral is the ultimate line of defence against illiquidity for banks, many central banks widened the set of eligible collateral. For instance, the central banks of Canada and Australia took such actions, and also the US Fed clarified that it would accept certain instruments in its discount window.