Liquidity in corporate bond markets has fallen, helping to accentuate volatility, such as swings in U.S. Treasuries and Bund prices that have unsettled investors over the past year.

Policymakers worry whether there would be enough liquidity in markets to cope with mass redemptions.

Weber, a former top official at the Bundesbank, told a Bank of England forum that putting in place ahead of time a framework for dealing liquidity freezes would be a better solution than trying to find answers during an emergency.

"A vacuum is not a good market structure," he said.

As banks like UBS retreat from market making, which Weber blames on tougher regulation, there was a need to spell out now who will take on the mantle of being in charge of liquidity in an emergency, he said.

"That is something we need to address. If central banks and regulators are getting banks out of their business, they have to be, in an emergency case, prepared to step in," Weber said.

Bank of England Deputy Governor Minouche Shafik told the forum that the BoE has a "narrow remit" to intervene in markets as a last resort and would do so if financial stability was threatened.

The "taper tantrums" seen so far did not threaten stability, she added.

"Central banks need to tread very carefully. The first line of defence against illiquidity is the market participants themselves," Shafik said.

Blythe Masters, CEO of Digital Asset Holdings, said that failing to plan for a freeze in liquidity was "communal irresponsibility".

"What worries me is that nobody really has responsibility for ensuring we have market liquidity," added Douglas Elliott of the Brookings Institute in the United States.

(Reporting by Huw Jones, editing by William Hardy)

By Huw Jones