We currently surrogate the market in both its allocative and price discovery functions. We have also considerably lengthened the list of eligible assets that banks can pledge as collateral, so as to ease banks’ balance sheet constraints and facilitate the liquefaction of bank assets for which markets could find no price.
In concrete terms, this means that the central bank should be prepared, if necessary, to take steps that go beyond adjusting the aggregate supply of reserves, including providing an increased volume of term funds, conducting operations against a broad range of collateral, and conducting operations with a broad range of counterparties.