3  Figure 2: The role of asset bubbles and credit in the severity of recessions (1870-2013) Percentage change in real GDP per capita  10  10  Recession  8  8  Bubble, low credit  6  6  Bubble, high credit  4  4  2  2  0  0  -2  -2  -4  -4  -6  -6  0  1  2 3 Years from crisis  4  5  Source: Jorda et al (2015)  Our prudential framework for safeguarding financial stability is more than just our macroprudential policy (Table 1).7 Our framework includes a minimum level of capital and liquid assets that banks must hold, to ensure they remain solvent and can retain market confidence during periods of severe stress.
We call these our baseline prudential buffers. In cases of bank distress or failure, there are procedures in place to carefully manage the situation and limit the impact. We use macroprudential policy to build an additional layer of protection if risks are particularly high at a point in time.