That is, trading in standardised products should be capital-advantaged and limited basis risk should not result in punitive capital charges. Bespoke transactions will continue to have their place, but should be subject to higher capital requirements so that incentives are appropriately aligned. Liquidity can be enhanced by a number of strategies.
More effective resolution processes will help ensure that markets are robust to the failure of participants, thereby promoting liquidity in more states of the world. Measures to develop continuously open funding markets, such as CCPs, should expand liquidity options, as will more effective securitization. Central bank liquidity facilities should reinforce continuously open markets and, potentially, securitization reforms. Securitization will also enhance liquidity options.