Liquidity
Liquidity provision is important because a failure in the payments system could lead to a chain reaction and to a full-fledged systemic crisis. Banks and economic agents are interlocked through their balance sheets, so if “A” cannot pay to “B” because of a liquidity shortage at “A”’s bank, then “B” cannot pay “C”, “C” cannot pay “D”, and so on.
Liquidity
Liquidity provision is important because a failure in the payments system could lead to a chain reaction and to a full-fledged systemic crisis. Banks and economic agents are interlocked through their balance sheets, so if “A” cannot pay to “B” because of a liquidity shortage at “A”’s bank, then “B” cannot pay “C”, “C” cannot pay “D”, and so on.
