Whenever there are difficult issues, outside reviews of the Bank’s performance will be conducted, publicly released and acted upon. Looking ahead The Bank welcomes such scrutiny of our activities, including open debate about the cumulative impact of reform on the functioning of markets. In particular, while the core of the system has been made more resilient, the combination of new prudential requirements on dealers and structural changes in markets has reduced market depth and increased potential volatility. This process likely has further to run, particularly as the normalisation of global monetary conditions edges closer. Firms and regulators should be alert to these developments, including their consequences for investment funds that offer daily liquidity while investing in securities that only appear liquid. To be clear, more expensive liquidity is a price well worth paying for making the core of the system more robust. Removing public subsidies is absolutely necessary for real markets to exist. Volatility characterises such real markets and much of the pre-crisis market making capacity among dealers was ephemeral. However, the possibility of sharp, unpredictable changes in market liquidity poses a clear risk to financial stability, particularly when some  3  See, inter alia, the Record of the FPC meeting held on 20th November 2013, which summarises the outcome of joint work with the FCA on “snap-back” risk; Bank of England (2014), “Stress testing the UK banking system: 2014 results”, December; Bank of England (2014), “The Financial Policy Committee’s review of the leverage ratio”, October.
Mark Carney: Building real markets for the good of the people Speech by Mr Mark Carney, Governor of the Bank of England and Chairman of the Financial Stability Board, at the Lord Mayor’s Banquet for Bankers and Merchants of the City of London at the Mansion House, London, 10 June 2015. *  *  *  I am grateful to Ben Nelson, Iain de Weymarn, Nicola Anderson, Alex Brazier, Andrew Hauser, Chris Salmon and Tim Taylor for their assistance in preparing this speech and accompanying Open Forum document. My Lord Mayor, Lady Mayoress, Chancellor, Ladies and Gentlemen. Almost 350 years ago, the Great Fire destroyed the City of London and rendered 100,000 people homeless. It took half a century to rebuild. The legacy of the Great Fire endures, including such Wren masterpieces as St Paul’s and his twenty-five other steeples that survive today within the City’s precincts. But the Fire’s legacy is not limited to how the City looks, it extends to what the City does. The blaze led Nicholas Barbon to establish the first insurance company, an innovation to fulfil a social need: the sharing of risk. Public authorities complemented private initiative. There was a Royal Proclamation that set standards for wider roads and houses built from brick and stone instead of timber. And Parliament passed the Parish Pump Act to prevent “mischiefs that may happen by fire” by establishing fire brigades and improving water supply.