First, the central bank must maintain “constructive ambiguity” to prevent individual financial institutions from becoming too dependent on it. This phrase means that although the central bank is able to intervene in the market to insure financial stability, it must not give any assurance of a bailout to individual financial institutions, whether covertly or overtly.
Second, even if support is given to individual financial institutions, punitive rates or at least market interest rates must be applied in order to avoid the exploitation of the interest rates differential. Lastly, an element of conditionality including a resolute self-rescue plan must be clearly imposed and its performance closely monitored by the central bank. 3  BIS Review 120/1999  3.