In other words liquidity can be the catalyst for financial stability risk. Our liquidity policy requires banks to maintain specified ratios of expected net cash inflow or outflow. It is intended to reduce the likelihood that an individual bank needs to call on us as the lender of last resort, and ultimately reduce the risk of a bank failure.
Given the fact policy makers are still reaching deep into their bags of tools to tune markets years after the crisis, another period of severe turmoil would likely be even more problematic. 2  See Engen, E.M., et al.