Among the panel discussions and presentations made in conjunction with the Financial System Inquiry workshop organised by the Centre for International Finance and Regulation was a presentation by Bob Officer, emeritus professor from the University of Melbourne. In a wide ranging talk, Officer examined the implications of the 'lenders of last resort' function of central banks in times of crisis."It is not such a big call if the central bank purchases government securities, due to the central bank's influence on interest rates," he said, in the context of protecting depositors' funds. "It is a much bigger call when central banks extend their purchases to privately issued securities such as bank paper, which has significant credit risk.""Clearly the quality of the assets at the bank determine whether the central bank is dealing with a short-term liquidity problem or it's facing an insolvency issue," Officer said.He also said this apparently favourable treatment for the banks has to come at a cost. "Conceptually, the RBA's lender of last resort facility should resemble an insurance policy," he said. "It may protect a bank run but will not protect the bank from poor quality assets. The broader scheme of insurance assumes that merely deposit insurance is needed, but this should not take the form of extra prudential regulation." Officer suggested that the best way to give the banks a degree of freedom to operate but avoid moral hazard was to charge a premium matching the degree of risk. This, he said, would resemble the government guarantee for deposits but extended so that wholesale funders are also covered for a fee. "This premium should be variable and transparent with agreed parameters," Officer said."The best time to introduce such a system is to do so when the banking system is not under pressure."He also questioned the four pillars policy, which was originally set up as a six pillars policy, describing it as "an unnecessary constraint on banks." Noting that all of Australia's Big Four banks are ranked in the 40s on a global scale for market capitalisation, he said that even combining the two largest, National Australia Bank and Commonwealth Bank, would only result in a bank ranked no. 17."I don't think combining two of the major banks would decrease competition. It was never meant to be a level playing field, " said Officer. "If you've got economies of scale why don't you realise them?"The Australian Bankers Association chief executive Steven Munchenberg agreed this was a chance to take a sensible, calm and deliberate look at the underlying principles that needed to be applied to the system, including the need to increase transparency and disclosure."Disclosure is not a universal panacea, but does it serve a useful purpose? Yes of course it does."Munchenberg said the inquiry had got off to a good start, and the nature of the submissions to date had been strong.