Market operations and prudential policy The synergies I have identified so far explain why it makes sense for monetary policy and prudential policies to be operated by a single institution, but there are also complementarities between prudential policy and the way a central bank uses its balance sheet and controls the supply of high-powered money. 13  In a concentrated banking system such as the UK’s the resilience of a subset of large institutions has a disproportionate effect on the resilience of the system. One might think that microprudential regulation is then enough to guarantee systemic stability. But that is not so when there are systemic externalities or financial accelerator effects. The latter operate through feedbacks in the macroeconomy, and would depend (among other things) in the short run on the response of monetary policy. A macroprudential authority – with a macroeconomic viewpoint – therefore complements microprudential supervision even in a concentrated banking system. 14  See Bank of England (2009) for a discussion. 15  Blinder (2010) makes this argument in the context of potential conflicts between safety and soundness considerations and monetary policy. 6  BIS central bankers’ speeches  The design and operation of our liquidity facilities have important synergies with prudential policy. The terms on which we supply liquidity in times of stress affects the level of selfinsurance banks choose. If we are too strict, banks have to over-insure at significant cost by holding an excess of low-yielding liquid assets rather than loans, and markets will freeze too quickly in crises.
In 2005, 4 commercial banks launched the E-switch facility to allow their customers to share their ATMs and other payment delivery channels, like point of sale terminals. These services were unheard of before the reforms and were supported by the international community. •  Commercial banks have also embarked on other initiatives including expansion programmes based on the community banking concept. This is consistent with the rural banking concept and is intended to provide financial services to those sectors of the community that are not currently serviced by the banking sector. BIS Review 72/2006  1  Your Excellency, to meet the challenges which come with an expanded banking sector and in our desire to continue modernising the overall financial sector, it has been imperative to strengthen the prudential and supervisory mandate of the Bank of Zambia. In this regard, the key initiatives that have been endorsed, with an ultimate goal of promoting safe, sound and efficient operations have included: •  The enactment and amendment of the Banking and Financial Services Acts in 1994 and 2000, respectively.