From the standpoint of the banking sector, the ultimate impact of the crisis will depend both on its scale and duration and on the effectiveness of economic policies in mitigating its effects on households and firms. Along these lines and in the case of monetary policy, in December we extended our pandemic emergency purchase programme until at least March 2022 to ensure that financing conditions are favourable. More recently, the ECB has sought to counter the rise in long-term interest rates observed in recent months, in a setting in which the macroeconomic projections are similar to those in December, with a medium-term inflation forecast some distance off our objective and below that expected before the crisis. Specifically, at the ECB we have stated our intent to use the flexibility of our pandemic emergency purchase programme to increase purchase volumes in the coming months. From the vantage of the macro- and micro-supervisory authorities, we have continued to stress that the use of capital buffers by banks is appropriate in the current situation in order to recognise credit impairment and to continue providing sound credit to economic agents. Our empirical analysis shows that the use of these buffers would give rise to a positive effect on economic growth which, in turn, would ultimately translate into likewise higher solvency levels. 5  One issue worth monitoring in the coming months will, precisely, be the capacity of, or incentives for, banks to use the capital buffers available in the face of risk-materialisation scenarios.
The government has translated[1] this into three objectives: to spur a vibrant, innovative, and internationally competitive insurance sector; to protect policyholders and ensure the safety and soundness of firms; and to support insurance firms to provide long-term capital to support growth, including investment in infrastructure, venture capital and growth equity, and other long-term productive assets, as well as investment consistent with the government’s climate change objectives. These are consistent and mutually supportive objectives. Safety and soundness underpin the other two objectives: the sector can only be internationally competitive if it operates within a robust and reliable infrastructure, which includes the prudential regime as well as things like the legal system; and only a financially sound insurance sector  Goldilocks and the three pillars: how much capital is just right? ‐ speech by Anna Sweeney | Bank of England  Page 2  can make a sustainable contribution to long term investment. Conversely, an innovative sector, that supports the wider economy through long term investment, is ultimately a sounder one. Tailoring will mean reforms to specific aspects of the regime that are not well-designed or imperfectly calibrated for the UK, and are currently distorting incentives and behaviour. The risk margin is probably the best known example. The concept – a margin over best estimate of liabilities so that they are held on the regulatory balance sheet at an estimate of their transfer value – is sound.