Preparing for the Next Financial Crisis

Economic policies and nancial stability 271

provision of reserves (conversely, it takes on risk when it purchases assets which

are less safe). On the other hand, there can be interplay between monetary policy

and liquidity regulation, as the latter might lead to a steepening of the front- end of

the yield curve on a permanent basis (BIS, 2015). Liquidity regulation might also

lead to more volatile short- term interest rates (BIS, 2015; Bech and Keister, 2017;

Keister, 2019), thereby possibly introducing more short- term uncertainty into the

transmission mechanism, as experienced in the US dollar money market in Sep-

tember 2019. However, central banks can use standard instruments to deal with

this issue, such as increasing remunerated re