predictable outflows ) ; ( ii ) precautionary ( to 2 for a recent assessment of vulnerabilities in financial markets see financial stability in focus : the fpc ’ s approach to assessing risks in market - based finance | bank of england. the view that there should an ample supply of reserves at all times is set out in 2016steingreenwoodhanson. pdf ( harvard. edu ) ; see also settlement liquidity and monetary policy implementation — lessons from the financial crisis - federal reserve bank of new york ( newyorkfed. org ) and how abundant are reserves? evidence from the wholesale payment system | nber. state contingent liquidity facilities for banks have been widely developed since the gfc – see for instance bank of england market operations guide | bank of england for a description of the bank ’ s toolkit. discussions about tools for non - banks are more recent – but see for instance from lender of last resort to market maker of last resort via the dash for cash : why central banks need new tools for dealing with market dysfunction | bank of england and a journey of 1000 miles begins with a single step : filling gaps in the central bank liquidity toolkit - speech by andrew hauser | bank of england. in response to the events of spring 2023, in which svb struggled to make effective use of its central bank facilities, some have re - advocated the adoption of a much more radical approach, sometimes known as the ‘ pawnbroker for all seasons ’, in which banks are required to pre - position sufficient assets at the central bank to ensure they can back all of their runnable deposits with drawing capacity in central bank liquidity facilities. see for instance more deposit insurance is no way to make banks safe - bloomberg ; we need a new approach to bank regulation | financial times ( ft. com ) ; and former boe deputy calls for radical overhaul of bank funding | financial times ( ft. com ). for an opposing view, see the pawnbroker for all seasons – an expensive and excessive solution to liquidity risk management in the banking system - macroprudential matters. 3 as discussed, for example, in ‘ till time ’ s last sand : a history of the bank of england ’, by david kynaston. bank of england meet potential outflows in a stress ) ; and ( iii ) speculative ( capturing the idea that reserves demand will also depend on the rate of return relative to other liquid assets )

not yet have much drawing capacity, for various reasons. so liquidity facilities aren ’ t yet a universal solution. - second, banks ’ ability, or willingness, to draw from liquidity facilities at the scale and speed of recent runs ( shown in figure 10 ) is unproven. where the constraints are technological, they should be fixable over time, given appropriate resources. but some banks still worry that investors, depositors or even supervisors may see facility usage as ‘ stigmatising ’, amplifying rather than mitigating stability concerns. great progress has made in reducing this risk in recent years, including through the development of market - wide facilities, the issuance of supervisory guidance stressing that the use of central bank facilities is part of normal liquidity management, and balanced disclosure regimes. but stigma is hard to eliminate altogether – and firms that baulk from drawing quickly and in size when a liquidity shock hits, and lack alternative sources of liquidity, are exposing themselves and the system to risk. - third, banks can only count access to central bank facilities towards their lcr requirements as and when they draw from them, adding to their reserves holdings. that means that, while there are many positive arguments for having such access, it does not absolve banks from having to make a choice between holding reserves ( however they might be supplied ) or other forms of hqla to meet the lcr. 17 bringing it together : some principles for steady state reserves supply where does this all leave us on those big questions i posed at the start? 17 the lcr rules do contain provision for ‘ contractual committed liquidity facilities ’ from central banks to be counted towards the lcr in a limited way – see option 1 in lcr31 - alternative liquidity approaches ( bis. org ). but the conditions for activating this option are demanding jurisdictions must show they have a structural shortage of domestic currency hqla, and central banks must be contractually committed to lend, and charge a relatively high fee for the facility. bank of england the marked tightening in post - gfc bank liquidity requirements and the continued growth in the size, speed and breadth of liquidity shock since then has increased the precautionary demand for reserves : the ‘ kink ’ in the reserves demand curve in figure 4 has moved decisively to the right. against that backdrop, maintaining monetary control, micro - and macro - prudential stability means supplying a materially higher standing stock of reserves than