It is nonetheless conceivable that, in the short-term, monetary policy might have undesirable distributional effects through financial channels. Monetary policy directly affects asset prices and interest rates, which redistributes wealth and income among different economies, sectors and households. This is the case for all monetary policies – indeed, it is one of the channels through which monetary policy works.
The 2008 financial crisis showed how dangerous liquidity problems can be – not just for individual banks, but for the financial system as a whole. Some banks are failing to meet our expectations in terms of the management of liquidity risk. We will therefore be paying particular attention to banks’ internal liquidity management – i.e. the Internal Liquidity Adequacy Assessment Process (ILAAP).