Principles to guide intervention Let me now elaborate on the five principles that we believe should guide interventions to support liquidity in markets. First, lending to support market liquidity should mitigate moral hazard. Such measures include limited, selective intervention and the promotion of the sound supervision of liquidityrisk management. Second, interventions should be graduated.
The strength of the intervention should be calibrated to the severity of the problem, so as to guard against overreactions that could unnecessarily raise the costs of the intervention and potentially crowd out private agents. Third, interventions should be targeted. A central bank should attempt to mitigate only those market failures that it is best placed to rectify.