4  BIS Review 141/2007  policy is no longer independent of the factors that move the economic variables that it is targeting. For instance, in setting the policy interest rate, the Bank of Israel, an inflation targeter, has to take into account changes in foreign interest rates that affect the exchange rate and through it the inflation rate.
4 But the growth of a modern banking system in England by the late 18th century, whose liabilities were effectively financial claims against assets that could not be quickly realised if suddenly called, brought heightened risks. Banking is, after all, a business that involves leverage and liquidity and credit risks.