Central banks have become better prepared to respond to systemic liquidity shocks in their various forms, and at the same time new prudential standards are requiring banks to be better prepared to withstand liquidity shocks on their own account.
The topic I wish to discuss here is the extent to which the new Basel liquidity requirements may have implications for central banks’ policy operations, and vice versa. I will discuss the extent of alignment between the two policy arms as well as some potential implications of the Basel III standards for central banks’ policy operations.