But recall that the last two vintages of subprime pre-crisis were twice as likely to default as their predecessors, and that the leveraged loan market shows few signs of slowing. ******************** Turning finally to the lie that “This Time is Different”. If the experience of the financial crisis teaches us anything, it’s humility. We cannot anticipate every risk or plan for every contingency. But we can, and must, plan for failure. That is how we can create an anti-fragile system that is robust to both the intensification of known risks and the crystallisation of Rumsfeldian unknowns. An anti-fragile system requires resilient banks. A decade ago, major banks were woefully undercapitalised, with complex business models that relied on the goodwill of markets and, ultimately, taxpayers. Large global banks can now stand on their own. 34  See FSB Policy Recommendations to Address Structural Vulnerabilities from Asset Management Activities (2017). FPC record (Q3 2018). 36 Over the past year, leveraged lending has grown by around 15% (or 10% of total advanced economy credit to corporates) as compared with an estimated 13% growth (or 13% of the total share of US mortgages), for the sub-prime market to 2007. 37 With maintenance covenants falling from close to 100% in 2010 to around 20% now. 35  10  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  10  Their common equity requirements and buffers are now ten times higher than the pre-crisis standard.
The FSB has identified a similar menu of tools under its Misconduct Action Plan, which its members can draw from. Thus far, however, action to promote good conduct has varied widely across the G20.25 The FSB’s compensation standards have been written into G20 regulatory rules, but not yet fully deployed.26 Although adjusting in-year pay is common, clawing back bonuses later on is not, even though it typically takes several years for evidence of misconduct to emerge. And few jurisdictions have put in place either formal mechanisms to ensure that boards and senior managers are explicitly responsible and accountable for what happens at their regulated firms or regulatory references to stop those with poor conduct records moving from firm to firm. 20  Fair and Effective Markets Review Final Report, HM Treasury, Bank of England and FCA (June 2015). PRA Supervisory Statement | SS28/15 Strengthening individual accountability in banking, May 2017. 22 FX Global Code (2018). 23 FMSB stands for Fixed Income, Currencies and Commodities Markets Standards Board. See Carney (2017), Turning back the tide. 24 Allen, T., (Q3 2018), Strengthening the link between seniority and accountability: the Senior Managers and Certification Regime, Bank of England Quarterly Bulletin 25 FSB (April 2018), Strengthening Governance Frameworks to Mitigate Misconduct Risk: A Toolkit for Firms and Supervisors. 26 FSB, (2017), Implementing the Principles for Sound Compensation Practices and their Implementation Standards, Fifth Progress Report.