1.   It must ensure that the banking system is stable and that therefore banks have adequate liquidity.

2.   But they must always have sufficient liquidity to cover the possibility of any withdrawals.

3.   Banks now have surplus liquidity.

4.   If banks choose to hold a lower liquidity ratio, they will have surplus liquidity.

5.   This assumes that banks have surplus liquidity in the first place.

6.   If a large customer is late in making payment, a firm may be unable to pay its suppliers unless it has spare liquidity.

7.   Assume also that the discount houses have surplus liquidity and that the Bank of England is selling Treasury bills.

8.   Now assume that discount houses have insufficient liquidity and are forced to borrow from the Bank of England.