##icality. much of this is due to a collective action problem, which the conservation framework seeks to address. the proposed framework promotes the conservation of capital and the build - up of adequate buffers above the minimum that can be drawn down in periods of stress, subject to appropriate measures that are coordinated with the national supervisor. the approach is not intended to take away freedom from a well - governed board, but rather to provide more clarity regarding the supervisory response. the committee is also working on a countercyclical buffer framework to protect the banking sector from excessive credit growth. it will follow up with more detail on the design of this framework. what is clear from history is that the banking sector is most vulnerable during periods of excessive credit growth. finally, we need to address the problem of systemic risk arising from excess interconnectedness and the perception that some banks are too big to fail. this is being addressed through a variety of means. first, we are introducing capital incentives to use central counterparties for otc derivatives ; second, there will be higher capital for trading and derivative activities, as well as complex securitisations, which are associated with systemic risk and interconnectedness ; third, there is a need for more capital for inter - financial sector exposures which are more correlated ; fourth, the committee is reviewing the appropriate capital treatment of systemic banks ( in coordination with the fsb ) ; and fifth, the committee ’ s recent recommendations for cross - border bank resolution provide a practical way to begin addressing the systemic risk issue at cross - border banks. liquidity strong capital is a necessary but not sufficient condition for banking sector stability. many banks got into trouble because they were financing long dated, illiquid assets with short - term wholesale funding. other banks simply did not have an adequate buffer of highly liquid assets to ride out a period of severe stress. many institutions, in their liquidity planning, assumed that they would experience difficulties, but that this would occur in an overall benign environment. our response is to introduce a global liquidity framework which establishes minimum standards for funding liquidity risk, thus preventing another race to the bottom in this area. banks must hold a stock of high - quality liquid assets that is sufficient to allow them to survive a 30 - day period of acute stress. this is complemented by a longer term, structural ratio to promote the funding of activities with more stable sources of funding on an ongoing basis. banks can meet these standards by changing their funding profile, making them

percent, while that of m2 ( which includes term deposits, which in light of the ultra - low interest rates on term deposits have migrated into the current accounts that are included in m1 ) has been 18 percent. central banks had to contend with the question of how much qe to do. one approach was to use a taylor rule to calculate what the ( negative ) interest rate would have been according to the taylor rule, and then to calculate how much a relevant quantity ( say the monetary base ) would have had to be increased to attain that interest rate. another was to use some form of the quantity theory. as an aside, if monetary policy was defined in terms of the growth of the compensation ( harvard university press 2004 ). see also bebchuk and fried, " equity compensation for longterm results ", wsj. com, june 16, 2009. for a comment on this point, see lucian bebchuk and alma cohen, " back to the good times on wall street ", wsj. com, july 31, 2009. in the general theory, keynes discusses gesell's scheme for creating a negative rate of return on money by stamping it. there are no doubt other schemes to achieve the same end, but as of now there seems to be no practical way of reducing the central bank nominal interest rate below zero. quantity of some asset, such as the monetary base, the central bank could not also announce a given interest rate as its policy rate. this is probably why the fed has announced the policy rate as a range. in our case, and that of most other central banks that are close to the zero lower bound, the central bank nevertheless announces and fixes a policy rate close to zero. these rates currently vary between 25 and 100 basis points. we stopped cutting the policy rate when it reached 50 basis points, on the basis of an analysis that further cuts would have had only a minimal impact on credit conditions. several central banks, including the fed and the bank of england, have undertaken programs of purchasing longer term government bonds. in the case of the bank of israel, where the term structure was very steep when the program was initiated, the goal was to reduce medium term indexed interest rates on government bonds, on which indexed mortgage rates are based. our estimate is that our program, which lasted for about four months 21 and amounted to a bit less than 3 percent of gdp ( less than 10 percent of the stock of relevant bonds )