But, even in Europe, where the influence of the so-called “new economy” is more modest, the rise in stock prices has also been significant;  ·  second, these changes have probably influenced private spending more than past asset prices movements did because of the more widespread share ownership observed in a number of industrialised countries. As far as France is concerned, market capitalisation as a percentage of GDP increased approximately fourfold between 1990 and 2000 (28% to 110.5%) and we have some evidence that the share of Households’ equity holdings in financial assets has also risen. All of these developments have recently raised the issue of whether monetary policy should react to financial asset prices, and more generally to asset prices. The motivation is two-fold: not only could the large swings, misalignments or even bubbles, on asset prices endanger price stability, which is the main objective of most central banks, but also they could impinge upon financial stability, which is an other important goal of central banks. Let me now develop these two points. 1. Implications for monetary policy  Transmission channels of monetary policy The role asset prices may play in the transmission mechanism of monetary policy is well known theoretically, although quite difficult to characterise empirically. Monetary policy mainly controls the interbank overnight rate, which is not directly relevant for any material economic decision. The way to which monetary policy affects the real economy is when it impacts on relevant financial prices, i.e.
Third, the Bank takes a countercyclical approach. The UK deploys a Counter Cyclical Capital Buffer (CCyB) through which capital is accrued in the good times for release in the bad. Two years ago, amid heightened uncertainty following the Referendum, we cut the CCyB by £ billion, releasing £ billion of additional lending capacity. As the immediate uncertainty receded, we then required banks to rebuild it. Today their capital buffers are twice as high, meaning the FPC could unlock over £ billion of lending capacity, if required. Fourth, the FPC has identified the major cross-border risks to financial services that could arise in a cliffedge Brexit. 13  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  13  The biggest risks relate to contract continuity. 16 million insurance policyholders in the UK and 38 million in the EEA have policies that firms might lose the permission to perform in a no deal scenario. Around £ trillion of cross-border derivative contracts could be disrupted by the loss of the regulatory permissions required to service them and loss of recognitions for CCPs. The Bank has been working with the relevant parties over the past two years to ensure they have contingency plans for the worst case scenario. In some cases, particularly in insurance, UK financial companies are restructuring so they can continue to serve their EU customers. If all current plans are delivered successfully, the number of EU policyholders at risk will fall to 9 million.