“Whether they like it or not, central banks are in the front line when it comes to keeping price manifestations under control. But what is new in our current experience is that most central banks have had to carry out their liquidity boosting operations in an environment where the liquidity shortage turned rather quickly into solvency problems of frightening dimensions, for which there has been no precedent since the 1930s,” said Lamfalussy.
Speaking at the ACI World Congress in Budapest today, Lamfalussy recognised central banks have had to resort to an “increasing variety of non-standard central banking interventions”, ranging from quantitative easing to an increased length of maturity of liquidity support, which has put pressure both on their operational capacity and their relations with governments.
Lamfalussy expressed little optimism that the pressures on central banks would fade away. “Our globalised, competitive and highly innovative markets have an unlimited capacity to breed financial disturbances of a size and nature that could lead to systemic meltdown. We badly need a co-ordinated action at the global level to extricate ourselves from the moral hazard trap implied by the prevailing expectation that systemically significant banks will always be bailed out,” he said"..............LINK
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