Provided appropriate collateral is taken and appropriate haircuts are in place, it can do this without incurring material credit risk. In so doing, the central bank can provide society with an efficient and low-cost form of insurance against a liquidity crisis in the banking system. Indeed, it is a longstanding role of central banking to do exactly this.
And it is a role that the RBA can, and is, prepared to play. Maturity transformation in the asset management industry But as I said before, banks are not the only institutions that undertake maturity transformation. Understandably, the sharper focus on liquidity risks has led to the question of whether the maturity transformation that is undertaken elsewhere in the system raises similar concerns.