This implements Bagehot’s prescription for mitigating systemic risk, that the central bank should as far as possible make clear in advance its preparedness to provide liquidity in stressed conditions. Referring to the central bank, he puts it thus: ‘The holders of the cash reserve must be ready not only to keep it for their own liabilities, but to advance it most freely for the liabilities of others. They must lend to merchants, to minor bankers, to “this man and that man”, whenever the security is good.’ The picture becomes more complex in the case of global firms that manage liquidity centrally. Such firms have liquidity needs in multiple currencies and locations. They may find it costly to hold enough liquid assets in every market in which they operate, and hence potentially face a mismatch between the location of their liquidity needs and that of their liquid assets. In response to this several central banks, notably those in Switzerland, Sweden, the UK, and the United States, have taken steps to allow the cross-border use of collateral in some or all of their routine lending activities. Others have taken the alternative route of attempting to reduce collateral costs for banks, and hence relax potential constraints, by accepting a range of less liquid and nonmarketable assets, while still controlling the credit quality of the assets involved. For example, the Eurosystem accepts a wide range of non-sovereign debt securities, including corporate bonds and asset-backed securities.
The Bank of Zambia is in the process of engaging the banks with a view to finding a solution to the high cost of banking which is often cited as the main hindrance to access to finance. I therefore appeal to all the banks operating in Zambia to critically assess the level of their charges and to continue playing the supportive role to development that they have in the past. In this regard, I am particularly pleased to make mention of the spirited efforts that Standard Chartered Bank continues to make in financing SME’s and Micro-finance. The experiences of many economies show that these sub sectors have the capacity to create a middle class and  BIS Review 163/2008  1  to emancipate both rural and urban dwellers from their poverty trap. Zambia has many promising entrepreneurs whose only constraint is affordable funding. As you explore the opportunities that this new venture will bring you, I urge you to focus on the customers who may appear small today, but could grow with the bank if they are given the right support. I wish you every success as you embark on this journey into North Western Province. 2  BIS Review 163/2008