When a counterparty fails, the central bank does not lose all the funds it has lent. A substantial fraction of value can be recovered from the repo-ed assets. What matters most, repo operations are short-term lending, from one week up to, currently, three months.
Speech at the London School of Economics, London, 20 May 2014. 6  This implies that an effective prudential policy is a necessary but not a sufficient condition for monetary policy to be effective in the medium to long run. Central banks must be conscious of unintended consequences of a monetary strategy that keeps policy rates low for a long time.