Let me turn to the third and final issue, namely how do we think about the issue of systemic risk, and systemically important status, for insurers? This is obviously topical in the context of the IAIS proposed policy measures for globally systemically important insurers. First of all, in my view the case for systemic importance for insurers has to be proved. It does not follow that because major banks are systemically important, the same must be true for insurers. And, second, if a case can be made, it does not automatically determine what the response should be; in other words, it does not follow that the same capital treatment of systemic firms and/or a statutory resolution regime are needed as for banks. The calibration of these responses will have to be proven, and the response will need to be consistent with mitigating the cause of the systemic risk. So, let’s put banks to one side, but only after making one important point, that whereas systemic risk in banking is dangerous in good part because that it is in the nature of banking that the confidence issue combined with a very high level of  BIS central bankers’ speeches  5  inter-connectivity of risk within the system creates systemic risk, this is not true to the same extent in insurance.
Since then, positive demand news has lifted the starting level of UK output. If this level was maintained along the same growth trajectory, the average output gap over the next three years would be 3 percentage points smaller than in May. With a Phillips curve slope of a third, inflation at years 2 and 3 would be around 1 percentage point higher than expected in May. Another significant piece of news since May has been in asset prices. Since then, shorter-term interest rates have fallen by around 25 basis points, risky asset prices such as equities have risen by almost 7% and the sterling exchange rate has fallen by around 2¼%. Taken together, these asset prices movements represent a material loosening in UK monetary conditions. On standard ready-reckoners, they would boost output by around ½%, and inflation by around 0.2 percentage points, at the policy horizon relative to the May scenario. Finally, imagine we plugged this news about the expected output gap and inflation into a standard Taylor Rule, in which interest rates are mechanically set in line with these two factors. Assuming weights on the 22  All speeches are available online at www.bankofengland.co.uk/speeches  22  two terms of 0.5 and 1.5 respectively, the Taylor Rule implied path of interest rates would, on average, be around 1 percentage point higher over the policy horizon as a result of the news about asset prices and demand, relative to the May-implied scenario path.