Andrew Bailey: A resilient financial system Speech by Mr Andrew Bailey, Governor of the Bank of England, at the TheCityUK Annual Dinner, London, 10 February 2022. * * * It’s a pleasure to be here this evening, and let’s take the fact that we are able to be here as a positive sign of things to come. Adrian, it’s timely to recall that, early on in the Covid era, you and I started to talk about the importance of ensuring that the financial system was able to support the economy through the pandemic, and about the need to mobilise to ensure that long term capital would be available for businesses as we came out of the pandemic and beyond. Those discussions formed an important input to the work of the Productive Finance Working Group, work which continues and for which I want to thank John Glen for his leading role and commitment and Nikhil Rathi too. That work is not done, but it has more momentum and substance as a consequence of our early engagement. I am going to say a few words on the subject of resilience, what it means in finance and how important it is. In March 2020, nearly two years ago, we had our initial very difficult time with some financial markets, the so-called “dash for cash” where weaknesses in the system of market based finance amplified the initial covid shock.
But I don’t think that one can realistically argue that we should consciously put the economy as a whole at risk of excess demand pressure and accelerating inflation in order to try to bring about a weakening of sterling against the euro. Yet that in substance is what the witnesses for the prosecution would be asking us to do. Now, even if you accept my case that macroeconomic stability, in the terms in which I’ve described it, is the right objective, there is nevertheless a more technical - but still serious - charge to answer. Some of those who agree in principle nevertheless argue that we are simply exaggerating the macroeconomic risks. The charge in this case is that we don’t in fact need interest rates at their present level, certainly not at any higher level, to maintain macroeconomic stability. That would be a technical judgement on which even the best informed experts might legitimately disagree: in fact as you may have noticed even the members of the Monetary Policy Committee themselves disagree, more often than not, at the margin. Now is not the moment for me to launch into that technical debate - just a day before our monthly policymaking meeting. In fact, strictly speaking according to our MPC “purdah” rules I ought not to be here at all. But you can find a detailed description of the technical debate, in the minutes of our policy meetings and in the Quarterly Inflation Report, either in our printed publications or on the Bank’s website.