[17] And the liquidity framework has been designed from the start to facilitate the usability of those liquid asset buffers when banks face liquidity pressures. For example, there is no minimum and buffer structure in the LCR. It’s all one giant buffer. And there are no automatic restrictions that result from drawing down liquid asset buffers, unlike in the case of usage of capital buffers that incurs distribution restrictions. There is no specific time period in the regulatory framework within which banks need to rebuild their high quality liquid assets (HQLA) after a draw down. And there is no expectation on banks to hold excess liquid assets in order to avoid falling below the regulatory standard in the event of a potential stress. And some jurisdictions, like the PRA, had gone out of the way before the crisis to say that liquid asset buffers should be usable. [18] Yet during the early stages of Covid-19, we saw evidence that suggested banks were overly reluctant to use their HQLAs, reinforcing similar evidence gathered from the Bank of England’s exploratory liquidity stress test. In February 2020, the market reacted to the Covid-19 stress through a typical flight to safety leading to increased prices of safe assets and falling safe asset yields. In mid-March however, the illiquidity of other markets turned a ‘flight to safety’ into a fevered ‘dash for cash’: to meet sudden large margin calls, firms began to sell their most liquid assets, which drove safe assets prices down.
The LCR, together with individually set ‘Pillar 2 add-ons’ to address additional risks (including risks from margined derivatives and intraday volatility), set the UK minimum amount of high quality liquid assets (HQLA) that a bank is expected to hold in normal times. This minimum amount of HQLA constitutes what we call the quantitative individual liquidity guidance (ILG). 17. Bank of England Financial Stability Report, June 2018 18. For example, see PRA Supervisory Statement 24/15 'The PRA's approach to supervising liquidity and funding risks',  Page 13 Section 4 – Drawing down liquid asset buffers, June 2015 19. See Speech by Jon Cunliffe ‘Learning from the dash for cash – findings and next steps for margining practices’, February 2022; and Speech by Andrew Hauser ‘Seven Moments in Spring: Covid-19, financial markets and the Bank of England’s balance sheet operations’, June 2020 20. Speech by Andrew Hauser ‘Why central banks need new tools for dealing with market dysfunction’, January 2021 21. See Financial Stability Board (2021)  analysis on Covid-19 support measures. 22. BCBS (2021), ‘Early lessons from the Covid-19 pandemic on the Basel reforms’  , Implementation report. 23. For example, Gerba and Katsoulis (2021) show evidence for the period 2016-2020 that where banks were increasing LCRs, they reduced longer-term reverse repo lending against lower quality collateral. 24. BCBS (2021), ‘Early lessons from the Covid-19 pandemic on the Basel reforms’ 25. BIS (2022), ‘Market dysfunction and central bank tools’  , Implementation report. , Markets Committee Paper. 26.