use of central bank credit lines to 25 percent and selling 20 percent of its other liquid assets. 18 this scenario would be the sort of liquid - asset drawdown that one would ideally like to see in a stress situation. moreover, the central bank could encourage this drawdown by varying the pricing of its credit lines – specifically, by reducing the price of the lines in the midst of a liquidity crisis. such an approach would amount to taxing liquidity provision more in good times than in bad, which has a stabilizing macroprudential effect. this example also suggests a design that may have appeal in jurisdictions where there is a relatively abundant supply of hqla - eligible assets. one can imagine calibrating the pricing of the clf so as to ensure that lines provided by central banks make up only a minimal fraction of banks ’ required hqla in normal times – apart, perhaps, from the occasional adjustment period after an individual bank is hit with an idiosyncratic liquidity shortfall. at the same time, in a stress scenario, when liquidity is scarce and there is upward pressure on the hqla premium, the pricing of the clf could be adjusted so as to relieve this pressure and promote usability of the hqla buffer. such an approach would respect the policy objective of reducing expected reliance on the lolr while at the same time allowing for a safety valve in a period of stress. the limit case of this approach is one where the clf counts toward the lcr only in a crisis. conclusion by way of conclusion, let me just restate that liquidity regulation has a key role to play in improving financial stability. however, we should avoid thinking about it in isolation ; rather, we can best understand it as part of a larger toolkit that also includes capital regulation and, importantly, the central bank ’ s lolr function. therefore, proper design and implementation of liquidity regulations such as the lcr should take account of these interdependencies. in particular, policymakers should aim to strike a balance between reducing reliance on the lolr on the one hand and moderating the costs created by liquidity shortages on the other hand – especially those shortages that crop up in times of severe market strain. and, as always, we should be prepared to learn from experience as we go. this presumes that the bank in question is able to present adequate collateral to the central bank to secure the central bank credit line. bis central bankers ’

circulation or in federal reserve vaults over current levels by late 1999. we believe this increase in the level of currency should be ample to meet the public ’ s demand for extra cash during the period surrounding the century rollover. this is a precautionary step on our part - - we believe it is prudent to print more currency than we think will be required than to risk not printing enough. while we do not anticipate any extraordinary demand for cash, we believe it is important that the public have complete confidence that sufficient supplies of currency will be available. in effect, the federal reserve is accelerating the timing of currency printing ; we are planning for a possible short - lived increased demand for cash and will be able to reduce future print orders to lower - than - normal levels. as we monitor the public ’ s demand for currency, we can introduce other measures to further increase cash levels. first, the recent currency order with the bureau of printing and engraving is for the federal fiscal year 1999, so that there will be time to print additional notes in the last three months of 1999. second, we can change the print order to increase production of higher denomination notes. third, we can increase staff in reserve bank cash operation functions to improve the turnaround time required to process cash deposits and move currency back into circulation. finally, as a last resort, we can hold off the destruction of old or worn currency. liquidity another contingency planning issue for the federal reserve is liquidity. despite their best efforts, some depository institutions could encounter problems in the rollover in maintaining reliable computer systems, and these problems may or may not affect their funding positions. to the extent necessary, the federal reserve is prepared to lend, in appropriate circumstances and with adequate collateral, to depository institutions when market sources of funding are not reasonably available. the terms and conditions of such lending may depend upon the circumstances causing the liquidity shortfall. financial sector initiatives the federal reserve and private industry have intensified cooperative efforts to address contingency planning. the year 2000 contingency planning working group of the new york clearing house ( nych ), the securities industry association ( sia ), and the federal reserve are developing coordinated contingency plans for the year 2000 and will act as liaison with other industry groups addressing contingency planning on behalf of banks, securities firms, exchanges, clearance and settlement organizations, regulators, and international markets. among other things, the working group is considering plans for the establishment