Funds investing in less liquid instruments have grown quickly at the same time as market liquidity has gone in the other direction. Market liquidity, particularly in dealer intermediated markets is lower than in the decade before the crisis. 12  Banks’ risk appetite and business models have changed and regulation has  ensured that they are adequately capitalised for the risks they run as market makers. In 2015 the Bank of England and Financial Conduct Authority conducted a joint information-gathering exercise on 17 asset management firms and 143 of their funds, focusing on those with large holdings of corporate bonds. One key finding was that funds individually were assuming more liquidity than might be available if there was market-wide selling pressure. For example, in the dollar corporate bond market, funds’ individual expectations of what could be liquidated in a day, when aggregated together, was three times daily market turnover. 13  The risk of sharply falling markets triggering large-scale redemptions is exacerbated by the fact that many retail funds offer investors daily liquidity, regardless of the nature of the fund’s investments. Individual funds do of course have a variety of mechanisms – ‘gates’, penalties, discounts, suspensions, etc – to help manage large-scale redemption pressure. But in an episode of severe market stress, it is not at all clear whether activation of such mechanisms by funds under stress would dampen rather than amplify redemption pressure across the market more generally.
At this time, most central banks, I think, have not responded systematically to this aspect of transparency. A number of central banks publish minutes and voting records of their monetary policy meetings with a lag, but the majority still don’t. The main reason is the risk that doing so could undermine the decisionmaking process where frankness and openness are required. Having detailed minutes and voting records might encourage the attending members to read out their statements rather than to get involved in detailed discussions. Because the practices differ, I said earlier there is not yet a clear convergence of the practice. Nonconvergence of practice can be seen clearly from the current practice of the eight major central banks. I want to end my remark today by sharing with you my thought on how to approach transparency in monetary policy. The first is that transparency is not just a fad. It is something that will stay. And as organizations making public policy decisions, transparency is of most importance to central banks as a way of being accountable. Also, transparency is important to central banks for building credibility and for gaining public acceptance of their policy. 2  BIS Review 10/2006  Second, in moving towards greater transparency, an approach based on sequencing or gradualism looks to me to be better and more efficient than a big-bang approach. The sequencing, in my view, should focus initially on building minimum critical components of core transparency, and then moving on to greater transparency in selected areas when ready.