Good links between these institutions and the academic world are also desirable; in a European context I consider that in this respect we are already in the forefront. It is likewise important that we participate in the international work on these issues, primarily in the context of the European Union and the ECB but also in the OECD and the IMF. And although we are doing relatively well internationally, a good deal is being accomplished elsewhere that we can try out here in Sweden. As a member of the Governing Council of the ECB, the Riksbank will have cause to go on working on these issues at the European level. I also think it would be natural to continue to publish the Inflation Report twice a year; that would be a way of presenting analyses of the interplay between cyclical activity, monetary policy and the government finances and thereby contribute to the discussion of economic policy. A qualified ongoing analysis is needed for a small country like Sweden to play a meaningful role in the international cooperation. Besides the traditional issues of stabilisation policy, there are grounds for the Riksbank continuing to be deeply engaged with developments in the financial sector, for instance with the Stability Report. A conceivable evolution of the existing structure as regards the basis for fiscal policy could be a more direct involvement of the Economic Council that is attached to development work in the Ministry of Finance.
This is not a reference to a 70s rock band – we do have some rockers in the PRA but they seem mainly to be Status Quo fans. It’s also not a homage to the song by Prince or the London radio station. Still less is it a breach by the PRA of social distancing guidelines. Rather, Lord Mayor, instead of “keep it simple, stupid”, in the PRA we say: keep it strong and simple! 9 See for example: https://www.osfi-bsif.gc.ca/Eng/fi-if/in-ai/Pages/SMSB20_cp.aspx#fnb19 10 Community banks meeting a 9% leverage ratio criterion can opt into a different regime. 11 See for example: https://www.federalreserve.gov/aboutthefed/boardmeetings/files/tailoring-rule-visual-20191010.pdf 8  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  8  Figure 1A: Predicting distress by setting regulatory thresholds To help us understand the need for a tailored approach for smaller banks and building societies, we’ve been testing how well some of the metrics in our current regime would have performed if we’d used them to identify vulnerable banks in 2007. We’ve done this by applying to historical data about banks’ leverage ratios, risk-weighted capital ratios, and net stable funding ratios, a technique used in existing Bank research.12 What we’re looking for is combinations of these balance sheet ratios which help us separate banks which got into trouble during the succeeding crisis from those which didn’t. Good combinations produce high hit rates and low false alarm rates. Our findings suggest that these metrics are not as well-suited to identifying small banks that are headed for trouble. Source: Bank of England and Bank calculations.