Many of these agents had a business model based on lending or investing money in the longer term and regularly obtaining financing through different forms of short-term market funding. When access to short-term funding was strangled, there was an overhanging threat of suspension of payments. To counteract this problem, many central banks established different types of ‘facility, where a number of financial institutions could borrow money against various forms of collateral – even those that could not be sold at a reasonable price on the market. Here we can see that the central bank has an important task to fulfil in a crisis: to take on risk in a time when no one else is willing to do so. In a crisis, there is a risk of a ‘fire sale’ dynamic arising. Institutions that cannot replace their funding are forced to sell off assets, which leads to a fall in prices If the central bank, in this situation, goes in and offers the actors loans with these assets as collateral, and does not fully apply the prevailing market valuation, the market can stabilise. The purpose of the measure is primarily to preserve financial stability by ensuring that the liquidity supply functions. But if the central bank does not support the liquidity supply, there is the threat of a credit crunch and bankruptcies, which will, of course, in turn have macroeconomic effects that impact the monetary policy objectives.
4 [25]  Steering the interest rates worked well during this period, despite the Riksbank using a very small toolbox when conducting its monetary policy. We went from doing to mostly talking about monetary policy. But the fact that this works is based on the Riksbank having built up credibility on the market and that it is ready to use its balance sheet if market rates were to deviate from the desired levels. On Wall Street there is an expression “Don’t fight the Fed” – which means it is not a good idea to take positions based on the assumption that the central bank will fail to attain the interest rates aimed for. Steering interest rates is also based on the fundamental transmission mechanism functioning – that other interest rates in the economy actually change when the shortest money market rates the Riksbank affects are changed. How well this functions depends on different conditions in the financial sector that can be state-dependent. A similar development took place in many countries during this period – the central bank's job conducting monetary policy was relatively simple. But below the calm surface, two interlinked problems were bubbling up – a trend fall in real interest rates and rising debts. I have talked about these problems on several occasions. 5  Falling interest rates Over the past 30 years, interest rates around the world have fallen heavily.