process of development. in concluding, i will offer an interim appraisal of our approach to liquidity regulation and identify some of the issues that remain. the role of liquidity regulation liquidity vulnerabilities are, of course, inherent to most forms of financial intermediation. the canonical case is that of maturity transformation by a very conventional bank, which takes demand deposits and uses the funds to make loans that are repaid only over time. should an unusual number of depositors want to withdraw their funds, for whatever reason, the bank may not have sufficient cash on hand to meet those demands. and, because the value of most of the bank ’ s loans will be difficult for outsiders to determine, they can be sold to generate more cash only at a significant discount and probably not as quickly as the bank ’ s liquidity needs might dictate. if depositors other than those initially seeking to withdraw funds hear that the bank may have difficulty meeting the demand, they may be motivated to join the see board of governors of the federal reserve system, federal deposit insurance corporation, and office of the comptroller of the currency ( 2014 ), “ federal banking regulators finalize liquidity coverage ratio, ” press release, september 3. bis central bankers ’ speeches withdrawal line before the bank runs out of cash entirely or, even worse, becomes insolvent. this, of course, leads to a bank run. the classic responses to this classic problem have been a combination of deposit insurance and discount window access. the former, established as part of new deal banking reforms, assures depositors that they need not worry about insolvency, thereby presumably keeping out of the withdrawal line depositors who thought they might lose their funds entirely. the latter gives the bank access to short - term liquidity in order to meet the demands of depositors who have an immediate need for cash. regulatory requirements were imposed to guard against the moral hazard that both programs could create. the resulting system meant that there were relatively few liquidity problems in the deposit - funded commercial banking system over the ensuing few decades. beginning in the 1970s, deposits began to decline as a proportion of funding for credit intermediation, as the separation of traditional lending and capital markets activities established by new deal financial regulation began to break down. during the succeeding three decades, these activities became progressively more integrated, as credit intermediation relied more heavily on capital market instruments sold to institutional investors. over time, these markets became –

markets, including those in which monetary policy is executed. but during periods of stress, runs by providers of short - term wholesale funding and associated asset liquidations can result in large fire - sale externalities and otherwise undermine financial stability. to the extent that disintermediation of prudentially regulated firms occurs, there will be a need to supplement prudential bank regulation with policy options that can be applied on a marketwide basis, such as a framework of minimum margin requirements for securities financing transactions. last month, the financial stability board finalized minimum margin requirements for non - centrally - cleared securities financing transactions in which a bank or broker - dealer extends credit to an unregulated entity against non - sovereign collateral. the financial stability board has also proposed to extend the framework to cover transactions among unregulated entities. 19 implementation of this initiative will be a first, important step to ensuring that better regulation of the liquidity positions of regulated firms does not result in the migration of run risks to the shadow banking system. we will need to monitor developments in order to assess whether further action is needed to consolidate the progress we have made in promoting financial stability. financial stability board ( 2014 ), strengthening oversight and regulation of shadow banking ( pdf ) ( basel, switzerland : financial stability board, october 11 ). bis central bankers ’ speeches