5  King M A (2006), Speech at a dinner for Kent Business Contacts in Conjunction with the Kent Messenger Group/Kent Business, Ashford, Kent, 16 January, 2006. 6  My colleague David Miles discussed this in “The Future Financial Landscape”, a speech given at Bloomberg, 16 December, 2009. 7  An earlier estimate of world broad money growth can found in Tucker P M W (2007), “Macro, asset price, and financial system uncertainties”, Bank of England Quarterly Bulletin, 2007 Q1, pp. 122–130. This version takes into account resident foreign currency deposits and non-resident deposits with banks. 6  BIS Review 21/2010  market intelligence began to report a revival in financial market “animal spirits” after the telco debt problems of 2002. 8 Obviously these wider measures of money collapsed – and, again, by more than the standard M4 measure – after the Lehman crisis. Broader measures can tell us about domestic as well as global conditions, and this may be especially important for the UK. The contraction in lending to our businesses and, to a lesser extent, to our households owes a lot to withdrawal by foreign-headquartered banks (Chart 15). Cross-border lending into the UK, particularly via syndicated lending, has shrunk. And so has lending by branches and by many (but by no means all) subsidiaries of overseas banks here. The same broad pattern seems to be true in other economies, but may be rather less significant. There is an unusually large presence of non-UK banks here, due to our hosting an international financial centre.
The Bank of England’s own November Discussion Paper was only one manifestation. Another is the IMF’s recent review of the macroeconomic policy framework. 11 The basic question is whether the authorities could lean against credit-fuelled booms by tightening capital or liquidity requirements for lenders or, as some economists have advocated, by raising the amount of collateral that borrowers have to put up. 12 In principle, this could be aimed at aggregate or sectoral credit conditions, and it could have a goal of making our banks more resilient. It would need to be pursued by executive agencies under clear mandates from legislators, and it would benefit greatly from transparency. A painful lesson for the Bank of England is that our warnings of “underpriced risk” and system-wide fragilities in our Financial Stability Reports were perhaps admired by some but made no difference. And, alongside our domestic and international peers, we are not in this for plaudits! People – the markets, firms, households – take notice of our Inflation Report, MPC minutes and speeches on monetary policy not, essentially, because they might sometimes be interesting or well done, but for the simple reason that the MPC is the body that sets sterling interest rates in the real world. If the authorities were able to deploy credible macroprudential tools, their stability warnings would probably be taken more seriously in future, because they would be able to follow up words with actions. Monetary policymakers would need to be attentive to the use of such instruments, as they would affect credit conditions.