Even if they believe the central bank, they may not still borrow since what they are trying to do is to get out of debt rather than get into further debt as is the case today. 15. So, how do central banks improve their credibility? By tying their promise of low interest rates to specific quantitative real sector variables?
We always kept stricter requirements on the composition of Tier 1 capital than was mandated by the Basel accords, and maintained for some time our own maturity transformation rules. On the latter, I regret to say, at some point we felt unable to go against the tide and formally abolished them in 2006.