Internationally, on the other hand, despite all the talk of globalisation, a borderless world and the integration of financial markets, there has been a reluctance to go very far down the path of finding an international equivalent to the bankruptcy laws or the lender of last resort.
Thus to reduce the likelihood of systemic risk, a bank will be able to hold some share of its liquid assets in the form of self-securitised mortgages. There is a trade-off here between systemic risk and reduced “market” liquidity of the bank’s asset holdings, but the bank will have access to liquidity from the RBA with these assets.