Introduction
Liquidity in core markets and financial institutions is foundational to a well-functioning financial system that serves businesses and households. But liquidity has become increasingly fragile over the past two decades. As exposed by the shocks of the global financial crisis, the pandemic, and the banking turmoil of 2023, illiquidity in markets and firms has threatened—and could again threaten—financial stability globally and, with that, economic growth.
This brief will examine the fragility of liquidity in the global financial system. It will seek to answer questions including these: What are the sources of fragility in global liquidity and how can we improve the resilience of liquidity in financial intermediaries (banks and nonbanks) and in markets? What metrics are informative about emerging vulnerabilities in this area? How should central bank liquidity operations—including asset purchases but also lending operations—be amended and coordinated across borders?
