Together with the provision of liquidity, there may also be a need for the central bank, or prudential regulator, to provide information about the quality of banks' balance sheets to reduce the uncertainties that pervade. One could characterise the stress tests conducted in the US in the middle of 2009 as an example of this.
Moreover, by providing the liquidity (against collateral), the central bank is indicating its confidence in the solvency of the institutions that can be reinforced by this provision of information. 1  These issues are also covered in Stevens G (2008), “Liquidity and the Lender of Last Resort”, Seventh Annual Sir Leslie Melville Lecture, RBA Bulletin, May, pp 83–91.