The Bank of England’s own November Discussion Paper was only one manifestation. Another is the IMF’s recent review of the macroeconomic policy framework. 11 The basic question is whether the authorities could lean against credit-fuelled booms by tightening capital or liquidity requirements for lenders or, as some economists have advocated, by raising the amount of collateral that borrowers have to put up. 12 In principle, this could be aimed at aggregate or sectoral credit conditions, and it could have a goal of making our banks more resilient. It would need to be pursued by executive agencies under clear mandates from legislators, and it would benefit greatly from transparency. A painful lesson for the Bank of England is that our warnings of “underpriced risk” and system-wide fragilities in our Financial Stability Reports were perhaps admired by some but made no difference. And, alongside our domestic and international peers, we are not in this for plaudits! People – the markets, firms, households – take notice of our Inflation Report, MPC minutes and speeches on monetary policy not, essentially, because they might sometimes be interesting or well done, but for the simple reason that the MPC is the body that sets sterling interest rates in the real world. If the authorities were able to deploy credible macroprudential tools, their stability warnings would probably be taken more seriously in future, because they would be able to follow up words with actions. Monetary policymakers would need to be attentive to the use of such instruments, as they would affect credit conditions.
BIS Review 21/2010  Chart 11a: Options-implied weight on falling consumer prices 5-7 years ahead per cent  US CPI <0%  Chart 11b: Options-implied weight on inflation rising by more than 5%, 5-7 years ahead per cent  40  40  35  35  30  30 25  25 US CPI >5%  UK CPI<0%* EA CPI <0%  20  20  15  15  10  10  EA CPI >5%  5  5 UK CPI>5%*  0  0 Nov 2007  Feb May Aug Nov 2008  Feb May Aug Nov 2009  Feb  Nov 2007  Feb May Aug Nov 2008  Feb May 2009  Aug  Nov  Feb  Sources: Bloomberg, RBS and Bank calculations  Sources: Bloomberg, RBS and Bank calculations  Chart 12: Central banks’ balance sheets as a percentage of GDP(a)  Chart 13: UK M4 money growth compared to wider measure of money growth(a) Perc entage c hanges on a y ear earlier 25 M4 Wider meas ure of broad money (a)  20 15 10  M4-IOFCs  5 0 -5  2000 2001 2002 2003 2004 2005 2006 2007 2008 2009  Sources: Bank of England, Bank of Japan, Federal Reserve, Thomson Datastream, www.measuringworth.org and Bank calculations. (a) Bank of England balance sheet data: end-February 1914–66, end-year 1967–2008. UK GDP: annual data (nominal). Federal Reserve balance sheet data: endyear 1914–81, end-July 1982–95, end-year 1996–2008. US GDP: annual data (nominal).