appropriate controls, making the ccob releasable will enhance also the resilience of the banking system. for instance, effective supervision and stress testing could inform the decision to release the ccob with an ex - ante assessment of the banking system ability to absorb potential future losses without breaching minima – a number of authorities did and published such tests in the midst of the pandemic. we would also need to ensure that an effective capital conservation mechanism is in place. this would prevent the released capital from being distributed inappropriately and ensure that firms would be able to rebuild the buffer in the future. the current tool, known in the uk as maximum distributable amounts ( mdas ), cannot serve this function because it does not apply to the portion of released capital. mdas restrict dividends, at1 coupons and bonuses when non - releasable buffers are used and appear to have two effects – one intended and one unintended. the intended effect is to prevent banks distributing away capital that could be otherwise used to build capacity to absorb losses and support lending. this is exactly what some global banks did in the early stages of the subprime crisis, which left them weakly capitalised when the lehman shock hit the system later on. but mdas can also have an unintended effect – they can disincentivise banks from using their regulatory buffers, for fear of market stigma, pushing them to cut lending and hurting the economy and therefore ultimately themselves. a recent study co - authored by colleagues in the bank of england sheds light on both these effects. the authors use data on 70 large internationally active banks and separate them into two groups : those with low and high concerns about mdas due to different preferences over stable dividends. [ 10 ] by comparing how these two groups of banks behaved when mdas were introduced and during the covid - 19 stress, they explore the effect of automatic distribution restrictions on banks ’ capital surpluses to regulatory requirements and their willingness to lend. they find that at the time mdas were introduced, banks more concerned about distribution restrictions and with low capital surpluses above regulatory buffers worked to build greater capital surpluses than their peers. [ 12 ] mda policy acted as intended, by incentivising banks to build and maintain their loss absorbency in normal times hence helping the banking system to become stronger against shocks. a less comfortable message comes, however, from the analysis of bank behaviour during the co

expect the debate on this to continue at the basel committee and the financial stability board ( fsb ). let me now turn to liquidity buffers. liquidity framework and liquid assets usability the global financial crisis exposed the lack of sufficient liquidity in banks ’ balance sheets and led to regulatory reform, including the introduction of the liquidity coverage ratio ( lcr ), which enhances the resilience of banks to short - term liquidity runs. [ 16 ] alongside the lcr, the net stable funding ratio ( nsfr ) was also introduced to ensure that banks maintain a stable funding profile over a longer horizon in relation to the composition of their assets and off - balance sheet activities. following these reforms, we find ourselves in a much better place than before the global financial crisis. liquidity regulation has helped banks to build strong liquidity buffers that can be used to absorb shocks. a decade after the onset of the financial crisis, liquid assets accounted for 17. 2 % of major uk banks ’ total assets – more than double the level in 2007. similarly, banks ’ reliance on short - term funding reduced substantially – falling by more than three quarters over the same period. and the liquidity framework has been designed from the start to facilitate the usability of those liquid asset buffers when banks face liquidity pressures. for example, there is no minimum and buffer structure in the lcr. it ’ s all one giant buffer. and there are no automatic restrictions that result from drawing down liquid asset buffers, unlike in the case of usage of capital buffers that incurs distribution restrictions. there is no specific time period in the regulatory framework within which banks need to rebuild their high quality liquid assets ( hqla ) after a draw down. and there is no expectation on banks to hold excess liquid assets in order to avoid falling below the regulatory standard in the event of a potential stress. and some jurisdictions, like the pra, had gone out of the way before the crisis to say that liquid asset buffers should be usable. yet during the early stages of covid - 19, we saw evidence that suggested banks were overly reluctant to use their hqlas, reinforcing similar evidence gathered from the bank of england ’ s exploratory liquidity stress test. in february 2020, the market reacted to the covid - 19 stress through a typical flight to safety leading to increased prices of safe assets and falling safe asset yields. in mid - march however, the illiq