The prudent management of central bank balance sheets; and 3. Risk management and the co-ordination of supervisory and monetary policy mandates. Impact of regulatory developments on central bank counterparties The central bank sits at the heart of the financial system by providing liquidity to (and absorbing 1/4  BIS central bankers' speeches  liquidity from) eligible counterparties.
Like market participants, central bank’s risk management practices must evolve if they are to continue to contribute to providing an effective policy response. This includes evolving in response to how changes in financial regulations affect counterparties.2 By design, the intention of such regulations is to alter the incentives and behaviours of credit institutions and market participants.