In this way, it was possible to retain overall liquidity in the bank system at an appropriate level. As you will see in graph 3, the average level of bank sight deposits changed very little throughout the year, if we compare each minimum reserve period with the next. Our other operational processes have also stood up well in the turmoil of the past few months. Payment transactions carried out between banks in the SIC system ran smoothly at all times, although banks have made greater use of SNB intraday loan facilities. In order to bridge liquidity bottlenecks at the end of the day, the National Bank provides a liquidityshortage financing facility to banks. This allows them to obtain liquidity on a temporary basis 2  BIS Review 150/2007  when needed, provided they have a limit with the SNB and provided this limit is continually covered with eligible securities. The continual coverage of the limits ensures that the banks have access to a liquidity cushion, even in critical situations. Actual use of the limits is generally restrained, and this has also been the case in recent months. Lessons learnt I would like to draw your attention to some of the lessons that we have already learnt from the current crisis. I will mention four points. First, the worldwide money market upheaval clearly shows how highly integrated international financial markets are today. Local crises can spread around the globe in a flash. The money market crisis is unlikely to have been overcome yet.
More widely, the future Prudential Regulation Authority will work to transform the climate of prudential regulation. The Bank’s prudential supervision will avoid ticking boxes, instead being centred on making judgments about big risks to safety and soundness. We want this to be as collaborative, open and honest as possible – a different relationship between banks and their supervisors. One that revolves around penetrating and forensic analysis of the business and, where necessary, frank discussions with senior management and the board. Not a negotiation. And a regime where the Bank’s Prudential Regulation Authority has the powers to underpin pursuit of material concerns about safety and soundness, based largely on whether firms meet the broad statutory criteria – the Threshold Conditions – for being authorised. Macroprudential policy: keeping the regime up to speed, and taking away the punchbowl No set of static rules, regulations and structures will keep the system safe for ever. As time passes, and the financial system evolves we cannot put an ever increasing burden on microsupervisors of individual firms to compensate for outdated regulatory regimes. The market will eventually take the system to the edges of the box the authorities have tried to put it in. Policymakers therefore need to be able to move the box when circumstances warrant. 6  BIS central bankers’ speeches  This is where macroprudential comes in – keeping the rules of the game up to date, and leaning against exuberance. In the UK, the Financial Policy Committee is charged precisely with those tasks.