•  That doesn’t tackle biggest issue of all. Central banks can, to a degree, smooth the necessary adjustment of economies and so create time for households, firms, governments to strengthen their balance sheets where necessary and adjust to shifts in the relative pattern of demand for goods and services. That is what is going on in the West now. But obviously central banks cannot force others to act. And our actions can make delay seductive. •  Given central banks’ responsibility to explain, we can nudge but we must stay within our remit. •  In the present crisis, part of the real-side adjustment is needed within the banking system. For that the Bank of England does have a special role. Through the new Financial Policy Committee (FPC), we have been pressing the banking industry to adjust given the external threats, as sound banks are needed for sustainable recovery. •  This represents the first intervention of so-called macro-prudential policy. Can view the role of the FPC as being to ensure that the need for stability in the financial system is not overlooked. Looking ahead, this will mean keeping the regulatory regime up-to-date as the financial system evolves and, when the time comes, ‘taking away the punchbowl’ before the next party gets as dangerously out of control as the last one did. •  The case for operational independence here is just as strong as for monetary policy. Taking Away The Punchbowl is something that requires a medium-term orientation.
Chart 6: Major UK banks’ regulatory capital, MREL resources and requirements, % RWA (2011-2022) End-state requirement  2014: UK bail-in power introduced T1 + other total capital resources (~T2)  MREL resources  Interim requirement  35% 30% 25% 20% 15% 10% 5% 0%  2011 2012 2013  2016  2020  2022  Sources: FSA regulatory returns, MREL+ returns, Bank calculations  43  All speeches are available online at www.bankofengland.co.uk/speeches  43  Chart 7: G-SIB and D-SIB high-quality liquid assets (liquid asset ratio) Per cent  14 12 10 8 6 4 2 0  2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total GSIBs DSIBs Sources: S&P Capital IQ and Bank calculations Notes: Weighted average based on a sample of 189 banks which are systematically important as of 2016. Yearly is defined as the fiscal year of reporting of the individual banks. Liquid Asset Ratio = (Cash equivalents + government securities)/Total assets  Chart 8: G-SIB and D-SIB loan-to-deposit ratio Per cent  3 2.5 2 1.5 1 0.5 0  2006  2007  2008  2009  2010  2011  Total  2012 GSIBs  2013  2014  2015  2016  DSIBs  Sources: S&P Capital IQ and Bank calculations Notes: Weighted average based on a sample of 189 banks which are systematically important as of 2016. Yearly is defined as the fiscal year of reporting of the individual banks. Loan to Deposit Ratio = Loans granted by a bank/Stable deposits received.