Regulations typically require firms to set limits for recovery plan triggers at well above 100% LCR. [28] A 2019 survey of Basel Committee jurisdictions show that 13 of 23 members attributed their unwillingness to use HQLA to the potential regulatory response. Discussions with UK firms show that even after the regulatory communications issued during the Covid-19 stress, there is lack of clarity around how regulators will react to LCR levels below 100%. Suggestions were made to take inspiration from the capital side, for example to have clear regulatory minimums at times of stress. Second, there is the potential market reaction. Banks have to maintain a balance between utilising liquid assets in times of stress and maintaining market confidence. As such, market reaction or stigma can be an important factor behind the reluctance in using HQLA. The concern is two-fold. First, banks do not want to be seen as the first to draw on their liquidity reserves, for fear of being stigmatised as being in trouble. Second, this market stigma may then turn out to be self-fulfilling, triggering market reactions that lead to a loss of short-term funding, which may result in a bank’s failure even if it was otherwise solvent. [29] Third, there is the role of disclosures. Page 9  While disclosures increase transparency of banks’ liquidity positions and can enhance discipline and market pressure to maintain strong liquidity positions ahead of a shock, they can also lead to a range of knock-on impacts during periods of market stress.
Christian Noyer: It was vital to break the adverse feedback loop between bank and sovereign risk Interview with Mr Christian Noyer, Governor of the Bank of France and Chairman of the Board of Directors of the Bank for International Settlements, in Les Échos, 17 September 2012. *  *  *  Do the ECB’s announcement to purchase sovereign debt and the German Constitutional Court’s approval of the European Stability Mechanism mark a turning point in the crisis? These announcements were welcomed by the markets and the outlook now appears much clearer. The European Stability Mechanism is a key factor for strengthening the cohesion of the euro area and demonstrates that the euro is here to stay and irreversible. It will help ailing economies return to competitiveness and growth. The Governing Council’s decision to purchase, subject to appropriate conditions, government debt is reassuring for at least three reasons: purchases are potentially unlimited, which should end speculation about the possible collapse of the euro area; the strict conditionality will oblige countries to pursue their fiscal consolidation efforts; lastly, these purchases fall squarely within the ECB’s mandate as they are conducted in the secondary market and aim to ensure the proper transmission of the policy stance to the real economy. The ECB has played its role. What must governments now do? Euro area Member States need to restore their credibility and they are already making efforts to do so.