Source: Bloomberg  Panel B: 10‐year ggovernment bond term premium (bassis points) 200  94-01  150  2004  2015 5  100 50 0 -50 -100 -150 -200 -250 24 -2  -12  0  12  24  36 6  48  60  72  Source: Bloomberg  obal Spread, basis b points Panel C: EMBI Glo  Source: Bloomberg and JJP Morgan  6  Panel D: Commodityy Prices (GSCI, Index t0=100) 200 94-01  180  2004  160  2015  140 120 100 80 60 -24 4  -12  0  12  24  36  48  60  72  Source: Bloomberg  Panel E: US Dollar B Broad (Index t0=100, increasse means apprreciation)  Source: Bloomberg  Figuree 3 PCE Co ore (percent, aannual changee) 3.5  94-01  2004  2015 5  3.0 2.5 2.0 1.5 1.0 0.5 -24 4  -12  0  12  24  36  48  60  72  Source: Bloomberg  7
We know that recoveries from financial crises tend to be slow; it takes on average about eight years to reach the pre-crisis level of real per capita income following financial crises. 3 Distorted and damaged financial sectors don’t allocate resources effectively. We may not pay the price for a number of years as the boom builds up. But in the end the price we pay is large when a financial system misallocates resources in the boom and in the following bust. Real GDP per head – the best measure of our aggregate living standard – remains 1% below its pre-crisis peak. This high cost to the economy and to society is why we need not only robust regulation of financial institutions but also of the financial system as a whole. Financial stability and sustainable growth are complements. They are not alternatives. Turning back to the reallocation mechanism, there are now some positive signs. The financial sector is well into its recovery. Bank lending growth to non-financial businesses was positive in 2015 Q1 for the first time since the crisis. Beyond the banking system, the Bank’s agents are reporting private equity firms purchasing debt-laden companies and restructuring their funding. The creation of new firms, a sign of vibrancy and reallocation in the economy, increased by 30% in 2013. And labour market ‘churn’, the movement of workers between firms is almost back to its pre-crisis average having fallen sharply in the crisis. In addition, we have seen a return of business investment over the past two years.