The actions taken by the Federal Reserve to intervene directly in some financial markets, such as the commercial paper market, are clearly emergency operations only. Except in the most extreme circumstances, when market functioning breaks down and systemic risk reaches unacceptable levels, central banks should distance themselves from decisions about the allocation of credit among private parties.
The most critical challenge policymakers are facing involves deciding what steps they can take to minimize the risk that such a severe financial crisis will be repeated.