18  Chen, Q., Goldstein, I., Jiang, W., 2010. Payoff complementarities and financial fragility: Evidence from mutual fund outflows. Journal of Financial Economics 97, 239-262. In addition, Feroli, Kashyap, Shoenholtz and Shin (2014) describe an alternative mechanism creating the same effect based on how investors evaluate performance of funds relative to other funds. Concerns about standing out of the sample and seeing a decrease in assets under managements can drive herding behaviour among funds. 19 Goldstein, Jiang and Ng (2017) show that corporate bond funds experience greater outflows when they have more illiquid assets. One example of this is the behaviour of investors in Pimco’s Total Return Funds in the aftermath of the departure of Bill Gross in 2014. In contrast to the other funds, the most liquid funds, such as Total Return Fund IV, did not see sharp redemptions. 20 See pages 29-31 of the October 2017 Global Financial Stability Report. 14  All speeches are available online at www.bankofengland.co.uk/speeches  14  Conclusion All of this is a far cry from the build-up to the financial crisis when nobody was asking “what could go wrong?” We now have a mandate – a duty in fact – to ask that, so we can guard against the financial system disrupting the wider economy. Our work is broadening out as the financial system evolves; from banks and mortgage lending to market-based corporate finance. Growth of market based finance offers a big opportunity. There can be strength in greater diversity.
Our stress tests show it has the capital strength to keep lending through severe UK and global market adjustments. And finally, are these markets resilient or are they prone to amplifying adjustments? 6  During his speech on April 2012, ‘Some reflections on the crisis and the policy response’, Ben Bernanke proposed that the aggregate decline of house prices had eliminated nearly $ trillion in paper wealth compared to the more than $ trillion eliminated from the fall of stock prices from the dot-com crash. 5  All speeches are available online at www.bankofengland.co.uk/speeches  5  Here we’ll need to change gear and delve into some detail of the financial architecture to spot things that might be what your mission statement calls ‘deficiencies’. In the process, I hope to give you some research interests. Because my short answer is that some new developments have raised questions that we should, and are, exploring by simulating markets under stress. Let’s look at each of these in a bit more detail. 2. Are credit and commercial property markets stretched? First, a word about burden of proof. The macroprudential objective – guard against the financial system disrupting the wider economy – means we are not in the business of forecasting; we are in the business of asking ‘what could go wrong?’ rather than ‘what is most likely to happen?’ It’s in that spirit that we approach asset price risks, where one person’s stretched price might be another’s rational assessment of fundamentals.