Of the firms we spoke to, even those with strong market access showed a marked reluctance to rely on that access as their only source of liquidity, particularly to meet projected needs in the initial days of a liquidity stress. For that, they preferred to hold reserves. Taken together, these two factors make up what I will call a ‘preferred minimum range of reserves (PMRR)’ for firms. Chart 9 illustrates the aggregate PMRR for the market as a whole, defined as the region where reserves begin to become scarce. We expect market interest rates to be relatively stable around Bank Rate in this region. This range will naturally include any buffers that firms are holding above their true minimum needs to deal with uncertainties over potential stressed outflows, access to wholesale markets and so on. Chart 9: Locating the Preferred Minimum Range of Reserves  The third driver of demand is the rate of return firms can earn on reserves relative to other liquid assets. In the current environment of very low bond yields, for example, reserves look quite attractive relative to gilts and other liquid assets, encouraging firms to hold reserves well in excess of their minimum preferred levels.15 But QT, when it comes, may imply a steeper yield curve than we see today. And that would incentivise firms to term out their liquid asset holdings towards gilts and other securities and reduce their reserve levels back towards their individual PMRRs.
The CRIB is totally dependent on these institutions for reliable information and given the objective of looking after its client institutions, the CRIB would fix negative labels on defaulting borrowers. The CRIB is not in a position to verify or go into details of the operations of any credit institution and establish the class, creed or social status of the customer. It only fix labels according to what is reported by the credit institution. On the other hand, the Bank Supervision Dept. and Non-Bank Supervision Dept. of the Central Bank of Sri Lanka, within their own regulatory ambit, can detect the non-reporting by institutions to the CRIB, but these departments are not mandated to share such information with the CRIB or vice versa. Hence, the injustice continues and often some of the deserving borrowers are denied access to credit institutions. In such a situation, how can the CRIB ensure social justice and equity in terms of public policy? The CRIB can be fair only if the credit institutions resolve to report on all defaulting customers with no exceptions. This situation clearly indicates that the decision to groom, retain or eliminate a customer rests largely with the bank or the credit institution. The injustice begins when the reporting institutions do not report defaults of all segments of borrowers. The extent to which the banks and credit institutions have done a disservice to some of the deserving borrowers, is known only to the banks and credit institutions themselves.