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.
And absent significant intervention from authorities here and in other countries, would have risked tightening financing conditions significantly and made the impact of the pandemic much worse. Tackling the causes of that is today a major area of work both internationally and domestically. For banks, we tested rigorously to ensure safety and soundness, and particularly that banks could support the economy through these very hard times. Indeed, we tested to make sure this support could continue through even harder times, and the answer was positive. This matters greatly because having a resilient system has meant that business lending could be sustained, and mortgage servicing pauses to support households seriously affected by Covid and its economic effects were extensively available and used, all to assist with dealing with the consequences of Covid. It has been the first major test of the post-financial crisis reforms to regulatory standards. In my assessment this outcome mainly passes the test of resilience, accepting both that we have work to do on the lessons from the dash for cash, and that we can never stand still because the positive benefits of innovation also create their own challenges. But, what is meant by the idea of resilience? A resilient financial system has the resources and flexibility to respond to a range of shocks of different sorts. In doing so, it will support stronger growth over the long-run, helping the economy to bounce back and reducing long-term economic scarring caused by the shock.