It’s not simply that there’s more money to play for (remember how much more is held in bank accounts). It’s that the assets backing the two are qualitatively quite distinct. Shifting resources from one to the other might therefore have an important effect on the relative supplies and prices of those assets. Charts 3 and 4 make the point. Modern commercial banks, whose sterling balance sheets are aggregated in Chart 3, have what is called a “fractional reserve” structure. Their holdings of liquid assets, including reserves at the central bank, are much smaller than their deposit liabilities (the purple bar). Most of their assets are loans. But loans are “illiquid”: there’s no secondary market in which to sell them and, at least in the short run, their value to the creditor cannot be easily realised. Indeed, when banks attempt to do so – by demanding early repayment or abruptly curtailing lines of credit – they can cause great economic damage, as we (re-)discovered after the 2008–09 crisis. This “maturity transformation” – the combination of on-demand liabilities and illiquid assets – imparts an inherent fragility to commercial banks’ balance sheets. If everyone tried simultaneously to withdraw a bank’s deposits, it wouldn’t have enough liquid resources with which to meet the demand. That’s why banks are vulnerable to “runs”. Taken with the economic costs of deleveraging, it’s also why society regulates and under-writes the banking system, via deposit insurance and central banks’ lender-of-last resort facilities.
Over a mediumterm horizon, balance of payments trends remain unchanged. This year’s revision of the estimate for foreign currency reserves from $ billion to $ billion comes a result of higher foreign currency purchase volumes based on the fiscal rule in the context of higher oil prices. In conclusion, I would like to make the following comment. Should the situation unfold according to our baseline forecast, we hold open the prospect of a key rate reduction somewhat sooner than we assumed back in December last year. We do not rule out that this may occur in 2019. The Bank of Russia will make its key rate decisions, as it always does, taking into account inflation and economic dynamics against the forecast as well as risks posed by external conditions and the reaction of financial markets. 3/3  BIS central bankers' speeches