Good morning.

Last year, I reflected on the emerging prudential lessons from the Covid-19 stress. I noted that one major lesson was that the banking system remained resilient and continued to provide credit to the real economy, demonstrating why the post-Global Financial Crisis capital and liquidity reforms were necessary.

I did, however, also identify some potential issues with the current capital framework, some of which were also reflected in Sam Woods' more recent 'Bufferati' speech. In short, I noted that the evidence suggested that capital buffers are likely not to work as intended. During a systemic stress, firms might not be willing to use their buffers and instead cut back on lending to the real economy to avoid dipping into them.

But capital buffers are only one of available instruments to support the banking system during periods of stress – there are other important instruments, including the vital liquidity buffer framework. And this is the new topic I would like to focus the second part of my speech today. 

(Full text available at BIS，14 July 2022)