to be “ safe ” – that is, an institution with a large capital base, holding high - quality assets. such a central bank would also need to be concerned about its own soundness. this led the central bank to be careful about to whom it should provide settlement accounts and to monitor these banks. in addition, it also had to weigh carefully the advantages of providing lender - of - last - resort assistance to the banking system to avoid a drop in its revenue stream against the risk of lending to an insolvent institution and making a loss that could decrease its capital base and threaten its reputation as the supplier of the ultimate settlement asset. similarly, central banks had a natural interest in ensuring the ability of the banking sector as a whole to meet the public ’ s demand for liquidity. the reason for this is that if it allowed a for further details see stephen millard and victoria saporta ( 2005 ) : central banks and payment systems : past, present, and future. see also ben norman, rachel shaw and george speight ( 2006 ) : the history of interbank settlement arrangements : exploring central banks ’ role in payment systems. solvent commercial bank to fail as a result of a bank run, it would only aggravate the situation and this could ultimately result in a more general run on the banking system and ultimately on itself. as a result, financial stability became a concern for central banks. moreover, for the central bank as the provider of the ultimate settlement asset, it was also important to maintain monetary stability. in particular, if the central bank printed more and more of its banknotes without a corresponding increase in the demand for them, the notes would fall in value relative to those of other banks. eventually, central bank money would no longer be seen as “ safe ” and this would undermine the confidence in and acceptability of the settlement asset. this brief historical overview demonstrates that the development of the core functions of central banks – monetary and financial stability – has been closely linked to their role in the provision of the ultimate settlement asset in the payment system. it is therefore important for central banks to have a thorough understanding of how these links work. let me share some thoughts with you in this regard. payment systems, monetary policy and central bank actions in the recent financial market developments central banks provide liquidity for different purposes. 2 to achieve their primary objective of price stability, monetary authorities supply base money to the economy. by matching the demand for base money with the supply that they

in contrast, non - banks would argue that common regulatory standards should apply to all relevant service providers in order to ensure a competitive level playing - field. in the end, the question is whether the approach to regulation should be based on functions or institutions. finally, the globalisation of finance has resulted in the expansion of cross - border financial linkages. an implication of globalisation is that financial distress is more likely to have farreaching cross - border effects. this is a natural consequence of the tighter cross - border linkages that have formed. such effects are almost guaranteed if distress were to involve one of the global players that operate across so many countries and underpin the smooth performance of so many markets. in fact, over 30 years ago, even the failure of a small bank active in fx transactions was sufficient to have significant cross - border ramifications – so significant as to act as a catalyst for the establishment of the basel committee on banking supervision. 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 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. issues and questions relating to the location of payment systems and market infrastructures are also gaining in importance for central banks. • central banks have started interacting and cooperating with new interlo