And let’s not forget that the tools available to prevent moral hazard generated by central bank liquidity facilities, such as penalty pricing, are rather blunt tools themselves. Don’t get me wrong, I don’t mean to suggest that moral hazard is not something we should worry about when thinking about the liquidity provision tools that are integrated in our  14  This is a feature of the ECB’s operating framework, which relies on a broad counterparty set and broad collateral base for its routine policy implementation operations. 15  The Bank of England (2013) describes some concrete steps it has taken to mitigate potential stigma. 16  In addition to the liquidity regulation introduced by Basel III, the SEC’s money market mutual fund reform should reduce imprudent risk-taking funded by the money fund industry. 17  Like liquidity risk management, credit risk management is also a core function of banks. However, I suspect few would suggest capital regulation is unnecessary. 18  In 2012, the Federal Reserve launched the Comprehensive Liquidity Assessment and Review (CLAR) for firms in the Large Institution Supervision Coordinating Committee (LISCC) portfolio. Like the Comprehensive Capital Analysis and Review, CLAR is an annual horizontal assessment, with quantitative and qualitative elements, overseen by a multidisciplinary committee of liquidity experts from across the Federal Reserve. In CLAR, supervisors assess the adequacy of LISCC portfolio firms’ liquidity positions relative to their unique risks and test the reliability of these firms’ approaches to managing liquidity risk.
“Liquidity Regulation.” November 20, 2014, speech at the Clearing House 2014 Annual Conference, New York. Tucker, Paul, (2016). “The Political Economy of Central Bank Balance Sheet Management.” May 5, 2016, prepared for a workshop jointly sponsored by Columbia University’s School of International and Public Affairs and the Federal Reserve Bank of New York, New York. 23  See Tucker (2016) for a consideration of these issues. BIS central bankers’ speeches  7  8  BIS central bankers’ speeches  BIS central bankers’ speeches  9  10  BIS central bankers’ speeches  BIS central bankers’ speeches  11