Central banks need joint plans for future funding crunches: Bank for International Settlements
LONDON: Major central banks need to plan ahead and work more closely together to ensure the world's bank funding markets do not freeze up again in future financial crises, the Bank for International Settlements said on Thursday.
A new report from the BIS, known as the central bank for the world's central banks, identified eight areas it believed needed attention to help reduce market turmoil, with six of them focusing on closer co-operation and communication.
The first was that central banks needed to decide which of them was responsible for banks with operations in multiple countries. Others ranged from information sharing, collateral and currency issues, to how early to disclose the provision of support to a lender.
"The key message throughout the report is that we need to prepare in calm times to be able to provide liquidity assistance effectively in times of stress," said the U.S. Federal Reserve's William Dudley, who chaired the BIS working group on the topic.
One of the complications of providing banks with billions of dollars or euros worth of funding, as the Fed, European Central Bank, Bank of Japan and others all did during the financial crisis, is that the money can then flow almost anywhere.
"The general lesson that emerges from the review of recent central bank experiences is the need to be prepared for new situations where liquidity assistance might be required," the BIS report said.
"In particular, central banks need to consider how the interaction of national liquidity assistance frameworks might affect the cross-border coordination and provision of liquidity assistance."
A new report from the BIS, known as the central bank for the world's central banks, identified eight areas it believed needed attention to help reduce market turmoil, with six of them focusing on closer co-operation and communication.
The first was that central banks needed to decide which of them was responsible for banks with operations in multiple countries. Others ranged from information sharing, collateral and currency issues, to how early to disclose the provision of support to a lender.
"The key message throughout the report is that we need to prepare in calm times to be able to provide liquidity assistance effectively in times of stress," said the U.S. Federal Reserve's William Dudley, who chaired the BIS working group on the topic.
One of the complications of providing banks with billions of dollars or euros worth of funding, as the Fed, European Central Bank, Bank of Japan and others all did during the financial crisis, is that the money can then flow almost anywhere.
"The general lesson that emerges from the review of recent central bank experiences is the need to be prepared for new situations where liquidity assistance might be required," the BIS report said.
"In particular, central banks need to consider how the interaction of national liquidity assistance frameworks might affect the cross-border coordination and provision of liquidity assistance."
