1  For a summary of the case for LIBOR transition and an account of the early steps the Bank took to support it for sterling markets, see https://www.bankofengland.co.uk/-/media/boe/files/speech/2017/the-bank-and-benchmark-reform-speech-by-chrissalmon.pdf?la=en&hash=597E3C1B41FBFFAFB6A05DFFE148F1E0B53BEB3F 2  All speeches are available online at www.bankofengland.co.uk/news/speeches  2  By contrast, firms that miss these opportunities risk finding themselves behind the curve: stranded with LIBOR-linked systems and obligations that are no longer fit for purpose. That risk is material – and will only grow as 2021 approaches. Of course not every problem can be solved through innovation alone:  -  Some require collective, or public sector, action – and that is being co-ordinated through the marketled Working Group on Sterling Risk-Free Reference Rates here in the United Kingdom, and similar bodies overseas. The report card for that collective process reads ‘a lot achieved, a lot left to do’, as we discussed at a conference at the Bank on 5 June. 2  -  And some do fall under the ‘must do’ heading for firms. To summarise the key conclusions of our first ‘Dear CEO’ exercise: you need to have identified and quantified your LIBOR-linked exposures; you need a granular transition project plan, including an identified responsible executive covered by the Senior Managers Regime (where applicable); you need to stress test that plan against the base case of LIBOR ceasing to exist at end-2021; you need to identify and manage your prudential and conduct risks; and you need to engage with the work of the relevant market working groups.
In addition, if central banks are perceived to assign higher priority to supporting asset prices than to safeguarding price stability, inflation expectations may be adversely affected and even become disanchored. Let me say clearly that I consider a situation in which the central bank would reduce its interest rate with a view to strengthening asset prices and banks’ balance sheets as purely hypothetical and, in the case of the Eurosystem, simply unthinkable. This is a situation that would obviously open up issues of moral hazard and that no central bank committed to price stability would ever contemplate. This discussion reminds me of a famous article by Alan Blinder, the former Fed ViceChairman. 4 He notes that academic economists are always concerned about the inflationary bias problem, that is the fear that central bankers may be constantly tempted to engineer inflation surprises in order to achieve sustained short-term employment gains, without realising that in the long run they would simply create higher inflation. Blinder reassures these concerns by observing that “during my brief career as a central banker, I never once witnessed nor experienced this temptation”. Let me then borrow Blinder’s words and use them to reassure the concerns of those who believe that we might be tempted to temporarily forgo our commitment to price stability out of worries about financial market developments: this is a temptation that neither I nor my colleagues at the ECB’s Governing Council have ever experienced.