New liquidity regulations could push interest rates to record lows.
The article discusses how new banking regulations can affect the availability of liquid assets and interest rates. It shows that in places with limited high-quality assets, these regulations can lead to higher costs for banks and lower interest rates. By introducing a committed liquidity facility, central banks can help balance these effects. The central bank can control either the cost of liquidity or the amount of liquid assets banks hold, but not both. The best approach depends on the local market conditions.