may well ask whether the new market - making role of central banks will continue. if central banks intermediate large volumes in normal times, they may not need to change their operational framework substantially when a liquidity crisis suddenly hits. larger intermediation could anchor expectations and make market dynamics less subject to threshold effects. does this suggest a new steady state – beyond the setbacks and progress of the current crisis – in which central banks will become a larger counterparty to the financial system as a whole? it is too early to say. nevertheless, let me share with you some preliminary thoughts on the future role of central bank intermediation. let me say up front that central bank intermediation involves subtle trade - offs. let me list some of them. first, the larger the intermediation offered by the central bank, the smaller, ceteris paribus, the incentives are for banks to reduce liquidity risk ( for example, to reduce the maturity mismatch of assets and liabilities ). after all, they can turn to the central bank if they need to. of course, while central bank intermediation increases the incentives for banks to take liquidity risk, it also increases the liquidity insurance available to banks. that is, as long as a bank does not adjust its balance sheet when the central bank offers more intermediation, its net liquidity risk exposure may in fact decrease due to the increased liquidity risk insurance provided by the central bank. but which effect is stronger : the incentive or the insurance effect? second, larger central bank intermediation can crowd out market activities. this might be perceived as a cost - reducing development by private banks. if the central bank lends larger volumes in longer - term operations, this might provide a boost to private lending at the same maturities : some banks might consider offering funds in the term money market only if they themselves can refinance such activities by participating in longer - term central bank operations. this may make term money markets more liquid in the end. however, this is not what the japanese authorities observed in the first half of this decade. to sum up, the extent to which the central bank uses collateralised lending to intermediate between banks has proved helpful in restoring confidence and “ real money ” financial flows in the underlying asset markets – the markets in which the collateral is priced. this has repaired links in the early stages of the transmission channel, the viability of which depends on those collateral prices. these links would

of banks and companies taking into account the structure, terms and nature of corporate debt. i would like to emphasise that we carry out these transactions in order to prevent situations when excessive exchange rate volatility and its considerable deviation from fundamental levels create financial stability risks and result in higher depreciation and inflation expectations. in particular, now that risks arising from the ruble exchange rate dynamics have aggravated, the bank of russia came up with interventions in the foreign exchange market. of course, we will also consider the impact of operations in the foreign exchange market on the ruble liquidity and ease the negative effect of growing structural deficit on the credit institutions ’ balance sheets. besides, we are especially concerned about the collateral adequacy and will take further measures to decrease pressure on market - traded bonds through providing liquidity against other types of assets. amid the increased volatility of the foreign exchange market, the bank of russia will stick to the conservative approach to the assessment of banking sector demand for liquidity. meanwhile, the volume of ruble liquidity provision will be sufficient for the banking system to function properly and the money market rates to remain within the interest rate corridor bounds. the bank of russia will also continue to permanently monitor the situation in all the segments of the financial market and is ready to take the required measures to ensure its stable functioning. it is crucial for normal functioning of the economy and successful implementation of all macroeconomic policy measures. currently the russian economy faces both external and internal challenges. the uncertainty over further developments is really high and the sensitivity of the economy and especially the financial markets to various developments increases, at some point the reaction can be excessive. in these conditions the bank of russia is ready to be flexible and take unconventional decisions in meeting strategic objectives of ensuring financial and price stability. bis central bankers ’ speeches