Fourth, large-scale liquidity provision for solvent governments is necessary to avoid a spike in spreads and loss of market access that would turn illiquidity into insolvency.
As liquidity provision becomes much more expensive, banks are under pressure as they seek to preserve client relationships and service trades in a more challenging environment.
Strengthening financial institutions necessitates stronger capital requirements and liquidity provisions, as well as better measurement and management of risks.
Third, just because there are changes in liquidity provision -- and some firms are not as active -- does not necessarily mean that liquidity is worse overall.
The first was to stabilize financial markets by injecting cash into the financial system through direct liquidity provision and purchases of private assets.