Back to liquidity Given the unprecedented shocks facing the global economy it is more important than ever that there is a focus on ensuring the right frameworks and approaches are in place to bring about appropriate levels of risk management and resilience to safeguard financial stability. This is particularly true in terms of liquidity, where the experience of recent weeks reminds us of the range of vulnerabilities which exist, particularly in the NBFI sector, which is why it is an ongoing focus for the G20. Liquidity is an important and topical subject. But given our focus for today let me return to the Bank's Alternative Liquidity Facility (ALF) to illustrate my favoured approach of using the 4Cs. For many years Islamic banks have faced challenges in efficient liquidity management, unable to hold the same high-quality liquid assets as conventional banks, such as central bank reserves, sovereign debt and asset-backed securities. Further, while Basel liquidity rules gave national supervisors discretion to treat sukuk as high quality liquid assets, the amount of sukuk in issuance eligible for this treatment is modest relative to demand for it. To avoid being caught short, Islamic banks have historically needed to structure themselves in inefficient ways by, for example, holding large stocks of non-interest bearing cash, or having limited offerings of short-term deposits. The ALF – structured as a wakalah, or fund-based facility – provides a creative solution.
The net zero challenge and the UK's role as a global financial hub The transition to a low emission world brings with it a unique set of risks – such as the risk of disorderly transitions away from emissions-intensive assets. Only the financial sector has the capability to marshal the vast sums of investment needed to help businesses and individuals structurally reduce emissions and move in an as orderly way as possible towards sustainable alternatives. The IEA expects that the world will need annual clean energy investment of $ trillion by the end of the decade to limit warming to 1.5oC2, while other recent studies have estimated that between $ trillion and $ trillion of cumulative investment will be required to meet global net-zero emissions by 2050.3 One of the key areas of COP27 is mobilising climate finance for developing countries. The UK's position as a global financial centre means it has a pivotal role to play in relation to the provision of sustainable finance to tackle climate change. This was strengthened further when the UK Government published its UK Green financing framework in June 2021 followed by the launch of the first green gilt issuance in September 2021 which raised £ billion and was the largest inaugural green bond issuance ever undertaken by a sovereign. Total green gilt issuance for the financial year 2021-22 raised a total of £ billion, and further green gilt issuance of £ billion is planned in 2022-23.