We – at the Riksbank – have been publishing stress tests of individual banks since 2006. With a track record of reasonable stress tests, the credibility of the methodology and the results has continued to increase during the crisis. Building confidence in the long-run: liquidity and capital regulation The financial crisis of the past two years has been very costly. We must ensure that this crisis does not repeat itself. Lawmakers, central banks and financial regulators have a daunting task ahead of them. Regulatory and supervisory reform is needed. I have great hope that we will take this opportunity to create a safer and sounder financial system. In this respect, I would like to bring up two important issues for a safer financial system: liquidity and capital regulation. Liquidity or, rather, illiquidity has been in the centre of this crisis. Banks will always be exposed to liquidity risk due to the maturity mismatch, as this is a central feature of banking. However, in the run up to the crisis, this maturity mismatch increased too much. Banks relied on the misguided perception that short-term financing would be available from liquid markets. A key lesson from the crisis is that a liquid market can very quickly become illiquid. The conclusion is that liquidity must be regulated more firmly. Banks need to hold a buffer of liquid assets large enough to allow them to weather a liquidity shock.
You can take a look at our first example of this – the November Inflation Report –online, at www.inflationreport.co.uk. This afternoon’s event will showcase a selection of the materials we are planning to run alongside these changes in our communications to help explain to people about the Bank’s work. To bring that to life, the first session will kick off with three of my colleagues – Ben, Sam and Jon –explaining to you what the Bank is doing on some topical issues, things that are influencing the Bank’s policies and the role we play in the economy right now. The questions they will answer are:   Why did the Bank change interest rates earlier this month?   What we are doing to keep banks safe? ; and    What are we doing in response to the vote to leave the EU to ensure the Brexit process is as smooth as possible? Through our dialogue with you today, we will enrich our understanding of how we can meet our objective more effectively, and we hope you will gain a better understanding of what the Bank does and how it is going about it. 4  All speeches are available online at www.bankofengland.co.uk/speeches  4  Before handing back to Ranvir, I’d like to thank Speakers for Schools, We Are Futures, Economy.org and Rethinking Economics – the key stakeholders that have helped us with this morning’s events and who have been working with us to develop our educational resources.