Should central banks lend against low quality collateral? We characterize efficient central bank collateral policy in a … model where a bank borrows from the interbank market or the central bank. Collateral has favorable incentive effects but is … costly to transfer to lenders who value the collateral less because of imperfect collateral quality. We show that a fall in …

borrowing. The subsequent crisis has reduced the pool of assets considered acceptable as collateral, resulting in a liquidity … shortage. When trying to address this, policy makers will need to consider concepts of liquidity besides the traditional metric … of excess bank reserves and do more than merely substitute central bank money for collateral that currently remains …

International policy efforts to strengthen financial systems have highlighted the role of liquidity. This paper … explores a framework to assess arrangements for market liquidity and lays out elements of systemic liquidity policy. Robust … arrangements for liquidity provide confidence to market participants that liquidity can be mobilized on demand in a predictable and …