The question is: how much is too much, to the point where it would allow banks to sustain flawed business models? Work is being carried out further on the interaction between the LCR and central bank facilities so as to ensure that the LCR responds appropriately to the provision and withdrawal of liquidity support by central banks. In this context, it has been proposed that central banks provide a “Committed Liquidity Facility” (CLF) to banks faced with a scarcity of HQLA. Under a CLF, the capacity to borrow from the central bank counts towards HQLA, with banks paying an upfront fee for a determined amount of CLF commitment. The CLF can potentially be useful not only in jurisdictions with a structural scarcity of HQLA, like for example Australia. The argument put forward is that banks in crisis times, wary of stigma effects, would not let their LCR ratio fall below 100 percent. A CLF, however, would allow banks to meet the LCR ratio at all times, although with time-varying reliance on privatemarket HQLA and on the CLF. One possibility would be for the central bank to encourage the drawdown of private-market HQLA by reducing the pricing of the CLF during crisis time. I would agree with Jeremy Stein13 that a CLF with an upfront fee is very different from counting central-bank eligible collateral as HQLA at no cost, which could weaken the incentive to borrow in markets and create excessive reliance on central bank funding. The  assets.
And when such growth is achieved by an individual bank, over and above that achieved by its peers, adverse selection – attracting weaker borrowers, who are unable to raise funds from other lenders – is an additional factor depressing the quality of the loan book. The simple fact is that rapid absolute and relative growth is strongly associated with poorer average loan quality and, sooner or later, sharply higher non-performing loans. The proposal is that, the risk weighting (and so, the capital requirement) of bank loans should include a growth-based component. This could be linked either to the economy-wide growth rate of a particular type of business, or to the growth rate of an individual bank’s lending relative to the market as a whole; or some combination of the two. This would make it more expensive for banks to expand their balance sheets faster that normal when confidence is high and could be a useful means of dampening banks’ contribution to the business cycle. The third, less direct, mechanism to discourage over-rapid expansion would be on the liabilities side. Rapid balance sheet expansion tends to be fuelled by access to less stable sources of funding, attracted perhaps by higher interest rates as the bank seeks to meet its balance sheet aspirations (and feels able to pay, because – as already explained – loan loss experience is good).