A couple of the rate-cutting phases we have had during this period have also been a little unusual. What happened in 1996 in particular, when the repo rate was cut from almost 9 to just over 4 per cent, was largely a question of confidence in the inflation target become established and enabling a substantial cut in the policy rate. The substantial rate cut in connection with the global financial crisis, from 4.75 to 0.25 per cent within the course of a year, was also special, as crises of this kind are fortunately rare (see Figure 3). In the United States, which has a longer history of a floating exchange rate, it is usually estimated that the policy rate is cut by around 5 percentage points in economic downturns. 5 It is reasonable to assume that in Sweden, which is a small open economy, a larger share of the adjustment in an economic downturn will come through the exchange rate than is the case in the United States. Let us say, without claiming any scientific exactness, that it would be desirable to cut the repo rate by 2.5–3 percentage points in a normal economic downturn. If the downturn were to occur at the beginning of 2021 and the policy rate were cut  4 Rudebusch (2016) shows that the probability of an economic upturn being broken does not now increase in  proportion to the time it has lasted. However, this was the case with the economic upturns prior to the Second World War.
Firms whose failure is unlikely to have financial stability consequences also have a part to play: they need to take a forward-looking realistic assessment to ensure they prepare for the event that they fail, which is likely to be a bank insolvency, and meet PRA rules on The RAF applies to such firms where they are a ‘material subsidiary’ of an overseas-based banking group for the purposes of setting internal MREL in the UK. 20  9  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  9  depositor protection. In placing an emphasis on the responsibility of individual firms to understand and plan for their own resolution, we are making firms accountable for this essential planning, reinforcing the credibility of those plans and the regime as a whole. Conclusion  Resolvability is better regarded as a spectrum than as a binary judgement. It is about ensuring authorities have credible options and the flexibility to respond to a crisis. A resolution is ultimately a transaction which occurs in a crisis situation and is unlikely to ever be a smooth process. But the work done by firms under the RAF should increase the chances that resolution is conducted in an orderly fashion and disruption to the financial system is minimised. Banks and building societies need to prepare themselves fully for these situations now.