One way to ease liquidity for banks is that the government can buy all highly rated securities held by the banks. Every single bank in the U.A.E. has some sovereign debts in their portfolios. I am not asking them to buy any junk bonds, rather the high quality U.A.E. government debt.
The Central Bank should have a permanent window for discounting high quality securities where banks could go and discount these. It gives peace of mind to the banks. In the absence of this facility, what banks tend to do is to keep a liquidity cushion for emergency requirements. This is a very expensive way of managing liquidity.
Lending rate is a function of both liquidity as well as credit demand.
Anything scarce will ultimately be tokenized because the benefits of digitization and increased liquidity are so great.
The failure of Lehman Brothers demonstrated that liquidity provision by the Federal Reserve would not be sufficient to stop the crisis; substantial fiscal resources were necessary.
The role of liquidity in systemic events provides yet another reason why, in the future, a more system wide or macroprudential approach to regulation is needed.
To be sure, the provision of liquidity alone can by no means solve the problems of credit risk and credit losses; but it can reduce liquidity premiums, help restore the confidence of investors, and thus promote stability.
As you know, in the latter part of 2008 and early 2009, the Federal Reserve took extraordinary steps to provide liquidity and support credit market functioning, including the establishment of a number of emergency lending facilities and the creation or extension of currency swap agreements with 14 central banks around the world.
Among other objectives, liquidity guidelines must take into account the risks that inadequate liquidity planning by major financial firms pose for the broader financial system, and they must ensure that these firms do not become excessively reliant on liquidity support from the central bank.
I worked for twenty-some years with no capital, so I never had any liquidity. Managing my loans alone wouldn't do it, and working hard twenty-four hours a day seven days a week alone wouldn't do it. You have to be properly capitalized.
