But insolvency had generally been avoided by the Bank of England twisting arms to ‘encourage’ other banks, to support a rescue ‘lifeboat’, as in the secondary banking crisis of 1973 or to take over the failing bank as with Barings in 1995. The failure of BCCI in 1991 did lead to a protracted and difficult insolvency. But the bank’s activities in the UK were not of a scale that posed risks to the UK financial system and economy The Bank of England’s approach to bank failure, an approach shared by many central banks, was one of ‘constructive ambiguity’. The aim was to guard against moral hazard by maintaining uncertainty about whether a bank in trouble would get liquidity support with the threat of insolvency in the background. In the event the threat of insolvency proved neither credible nor effective. When Northern Rock got into trouble with £ in customer deposits and a balance sheet of £ the UK financial authorities were left with no way of rapidly transferring parts of the failed bank’s business to another bank; or of recapitalising the bank by imposing losses on shareholders and creditors without serious risks to financial stability. 3  All speeches are available online at www.bankofengland.co.uk/speeches  3  And so, on 17 September 2007, the Chancellor was compelled to guarantee all Northern Rock deposits. Subsequently the bank was nationalised to avoid insolvency and to allow the bank’s critical functions to continue while a buyer was found for its deposits.
Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council judges that favourable financing conditions can be maintained with a moderately lower pace of net asset purchases under the pandemic emergency purchase programme (PEPP) than in the previous two quarters. We also confirmed our other measures, namely the level of the key ECB interest rates, our forward guidance on their likely future evolution, our purchases under the asset purchase programme (APP), our reinvestment policies and our longer-term refinancing operations, as detailed in the press release published at 13:45 today. We stand ready to adjust all of our instruments, as appropriate, to ensure that inflation stabilises at our two per cent target over the medium term. I will now outline in more detail how we see the economy and inflation developing, and then talk about our assessment of financial and monetary conditions. Economic activity The economy rebounded by 2.2 per cent in the second quarter of the year, which was more than expected. It is on track for strong growth in the third quarter. The recovery builds on the success of the vaccination campaigns in Europe, which have allowed a significant reopening of the economy. With the lifting of restrictions, the services sector is benefiting from people returning to shops and restaurants and from the rebound in travel and tourism. Manufacturing is performing strongly, even though production continues to be held back by shortages of materials and equipment.