the banking house to demand their money back. in such a case, even an institution that is fundamentally solvent – i. e., whose assets ( mostly longer - term loans ) are worth more than its liabilities – may find that it does not have enough cash on hand – that is, enough liquidity – to satisfy its customers. the function of a lender of last resort in such a case is to lend to the institution that is facing heightened customer demand for repayment in an amount sufficient to satisfy customer demands, while taking assets of the institution as security for the lending. if the lender of last resort does not act to fulfill this role, the institution facing heightened customer demands for repayment may be forced to begin a “ fire sale ” of its assets, the distressed and hurried nature of which will cause them to be sold at less than their true long - run value, which may quickly lead to the insolvency of the institution. the insolvency may precipitate further downward pressure on the market value of such assets magnifying the risk to other financial institutions. over the past 30 years, we have moved from a bank - dominated financial system to a system in which credit is increasingly extended, securitized and actively traded in a combination of centralized and decentralized markets. in many ways, the business models of banks and non - bank financial institutions – especially large securities firms – have converged, with banks playing a greater agency role in the credit process, and securities firms doing more of the financing. it is important to understand that investment banks now perform many of the economic functions traditionally associated with commercial banks, and they are also vulnerable to a sudden loss of liquidity. unlike commercial banks, which rely significantly on deposits for funding, investment banks operate according to a business model in which they fund large portions of their balance sheets on a secured, short - term basis in what is known as the repo market. because the assurance of access to short - term secured funding on a daily basis is such a critical component of business functioning for these entities, they are vulnerable to the possibility of a sudden pullback in short - term lending, or a reduction in the willingness of investors to lend against certain classes of securities. as we have seen throughout the past nine months, these changes in the relative roles of traditional commercial banks and investment banks have changed the nature of financial stability. in the united states, the regulatory framework and most of the tools that were created

without being market disruptive. 4. along with the rate cuts, we infused significant quantum of liquidity through both conventional and unconventional measures to stimulate the economy, restore confidence and revive market activity, while being mindful of the need to ensure that our liquidity augmenting measures do not engender future fragilities. our liquidity measures were unique in several ways : first, liquidity was provided only through the reserve bank ’ s counterparties ( banks ) for on - lending to stressed entities / sectors ; second, asset purchase programme was for a limited period of six months and much smaller in size than advanced economies, and was confined to government securities only ; third, collateral standards were not diluted while offering lending facilities ; and fourth, loan resolution frameworks for covid - 19 related stressed assets were not open ended but subject to achievement of certain financial and operational parameters. moreover, most of our liquidity injection measures had pre - announced sunset clauses, which helped in an orderly unwinding of liquidity on their respective terminal dates without de - anchoring market expectations. overall, liquidity enhancing measures worth us $ 227 billion ( 8. 7 per cent of gdp ) were announced, of which funds availed were us $ 157. 5 billion ( 6. 0 per cent of gdp ). 5. the liquidity infusion measures were mostly concentrated in 2020 but continued in 2021 in view of fresh waves of the pandemic and the fragile nature of economic recovery. nevertheless, surplus liquidity was gradually migrated from the short end to the longer horizon during 2021 through variable rate reverse repo ( vrrr ) auctions of longer tenors, which lifted short - term rates from ultra - low levels, thereby obviating financial stability challenges. this was done by sensitising the market well in advance through effective communication. further, recognising that the yield curve is a public good, the benefits of which accrue to all, we undertook outright asset purchases and operation twist1 – which were generally liquidity neutral – to modulate long term g - sec yields. this, in turn, lowered rates on all instruments benchmarked to prices of the g - sec yield curve. the resultant congenial conditions allowed corporates to mobilise large resources and repay high - cost debt from banks. such deleveraging by corporates reduced their balance sheet 1 open market operation involving simultaneous sale of short - term government securities and purchase of long - term government securities.