5  The intention is to avoid a firm drawing on publicly-provided liquidity support mechanisms if they actually have a fundamental problem of solvency or viability. But liquidity risk can never be completely distinguished from solvency risk at a point of stress. 2  BIS Review 126/2010  facilities, reserve account holders can deposit with, or borrow from the Bank overnight for unlimited amounts at a penalty to Bank Rate. 6 Open Market Operations The Bank’s Open Market Operations (OMOs) take the form of reverse repo operations – economically equivalent to secured lending – at different maturities. Normally we would lend (cash) short-term for one week and longer-term for multiples of three months. Shortterm repos have not been needed regularly since we started to inject cash directly via the asset purchase programme. But normally short-term lending operations would take place weekly at a size designed to be consistent with the commercial banks’ aggregate reserve targets for that maintenance period. This short-term lending takes place against a relatively narrow set of high quality collateral – mainly government bonds. The price has usually been Bank Rate 7 and bids pro-rated. Short-term repos are not intended to provide any back-stop liquidity support. They are limited, competitive and take a narrow range of high quality collateral. They are designed to help implement the monetary policy stance. If there is excess central bank money in the system relative to reserve targets, the Bank can also drain cash out.
Recovery plans have fortunately not yet been tested, and it remains to be seen how they work in practice. Most importantly, however, recovery is not an end in itself, but a means to preserve financial stability. Entry into resolution should be possible if the recovery plan has failed to return the FMI to viability or if its implementation would otherwise compromise financial stability, for  1  See Financial Stability Board. “Consultation Document: Application of the Key Attributes of Effective Resolution Regimes to Non-Bank Financial Institutions”, 12 August 2013, and CPSS-IOSCO. “Consultative Report: Recovery of Financial Market Infrastructures”, 12 August 2013. See also P. Tucker. “Central counterparties in evolving capital markets: Safety, recovery and resolution”. Banque de France Financial Stability Review, No. 17, April 2013. BIS central bankers’ speeches  3  example if the application of a particular loss allocation tool turns out to overexpose certain (groups of) participants. Moreover, resolution may also become necessary if participants do not want to use the CCP any longer and prefer to wind it down. In conclusion, the resolution authorities have the responsibility (and are in a better position than CCPs) to do what is systemically needed in a crisis situation, which may mean in extreme cases that the application of resolution procedures is preferable to the activation of a recovery plan. Of course, much will depend on authorities doing the right thing at the time of the crisis.