multilateral lenders into the foreign exchange reserves ; we participated in the loan guarantee scheme. all these things increased samos balances. we also faced a dilemma : in conditions of financial strain, our financial stability mandate inclined us to provide more liquidity, but our implementation framework still required us to create a shortage of liquidity. for the next two years, we muddled through. we tolerated a smaller shortage than before, in the region of r30 billion rather than r56 billion. to create this shortage, despite greater liquidity pressures, we had to use draining tools which were distortionary and expensive. for instance, we relied quite heavily on fx swaps, which contributed to high and volatile rates in the forward market, likely hampering investment by non - residents. 4 the volumes of public sector funds we took into the sarb cost around 30 basis points over repo. 5 in addition, we were concerned that our toolkit could fail if the supply of bank reserves increased further, in which case the shortage might have disappeared. in particular, we knew national treasury might need its deposits at the sarb, of which r26 billion had been drawn during covid, leaving just over r40 billion – more than the existing shortage. at the same time, we were fortunate that leading central banks had accumulated a wealth of experience in dealing with surplus liquidity. this meant we could draw on their experiences to design a framework better suited to south african conditions, rather than trying to invent something from scratch. what we came up with was in many ways the mirror image of the old framework. whereas the old system depended on a shortage of bank reserves, the new one relies on a surplus, and where once the borrowing facility was the locus of policy transmission, so now this is a deposit for further details, see box 5 of the april 2021 monetary policy review, available at : https : / / www. resbank. co. za / content / dam / sarb / publications / monetary - policyreview / 2021 / mprapr21internet. pdf this refers to the cpd deposits taken on call at the sarb, rather than being placed with the market facility. this meant we could stop draining liquidity, unwind those operations and let banks hold extra cash instead, on which they could earn the policy rate. the logic of this system is that abundant liquidity puts downward pressure on rates. but the deposit facility forms a floor : it is not attractive to

. 251 ( 1913 ). bis central bankers ’ speeches for as long as they have existed, central banks have calmed financial crises by lending to financial institutions against good collateral. because central banks step in when other sources of funds retreat, central banks acting in this capacity are known as lenders of last resort. but that phrase doesn ’ t mean that central banks make bad loans ; nearly all of their loans are to sound borrowers with sound collateral. banks rely on short - term funding such as overnight interbank loans or customer deposits to make the longer - term loans their customers need. if funding becomes scarce, banks become less willing to extend credit. to maintain the flow of credit to businesses and consumers, the federal reserve provides short - term credit to sound depository institutions as needed. to ensure that banks use the facility only as a backup source of funds, federal reserve loans are made at an abovemarket rate. in the panic of 2008, liquidity needs were not confined to the banking system. the shadow banking system, made up of investment banks, money market funds, finance companies, and investors in a wide range of debt securities, provided a large part of the credit that fueled our economy. when panic set in, it froze lending in banks and non - banks alike and produced funding pressures across a wide range of markets and institutions. the actions taken by the federal reserve to fight the crisis were quite traditional in the sense that, for years, central banks have been providing liquidity by lending to financial intermediaries. but they were unconventional in that the concepts had to be adapted to fit markets and lenders that had never been supported by the federal reserve before. now, i didn ’ t live through the banking crises of the distant past or those that might have occurred in other countries. but i can tell you what it was like at the center of the most recent crisis. funding was drying up for one institution after another and for one market after another. our efforts to provide liquidity were criticized by some as bailouts for the banks. i can understand how it could seem that way, but i also know that every action the fed took was directed at improving the economy rather than the well - being of the banks. we had to make many difficult decisions in the darkest days of the crisis. for me, the decisions were made a bit less difficult by several factors. first and foremost was the calm, decisive leadership by chairman bernanke, whose lifelong study of economics and economic history provided unique