So the risk of central banks having “too little” scope to carry out LOLR is real. At the same time, the public has a legitimate interest in avoiding “too much” LOLR. We cannot afford for financial institutions to view liquidity support as a substitute for prudent financial management: central banks must not be “lenders of first resort”. And lending to institutions that are in need of capital rather than liquidity is the wrong solution. Given the uncertainties involved, neither outcome can be avoided with certainty. But it is right to seek robust safeguards against them. BIS central bankers’ speeches  1  A well-designed LOLR framework must therefore get the balance right between lending “too little” and “too much”: –  To help avoid “too little” LOLR, central banks must be given clear responsibilities and the tools and powers needed to carry them out, including the ability to lend to individual institutions, covertly if necessary to maintain financial stability. –  To help avoid “too much” LOLR, central banks must have strong risk management, be ring-fenced from special interests (in public or private sectors), have a clear public mandate specifying their scope for action, and be subject to strong transparency and accountability requirements. There are powerful parallels between these design challenges, and those for monetary policy. Like monetary policy, LOLR is vitally important to an economy’s health, but involves intrinsically complex, technical judgments – including the solvency or otherwise of potential borrowers, the pricing, scale and maturity of loans, and the appropriate collateral.
This is the central role assigned to the Euro Retail Payments Board. Later on this morning, Yves Mersch will give us further insights into the work of the ERPB. Allow me now to conclude briefly by expressing again my gratitude to all the speakers, panellists and participants who are present today to share their thoughts on a wide variety of subjects of topical interest. I wish you extremely fruitful discussions throughout the whole day. Thank you for your attention. 3/3  BIS central bankers' speeches