There were reports of defaults on mortgage loans, but it was generally believed that the loans at risk were confined to a small segment of the market. The first warning of more severe problems came in winter last year. In the course of summer, it became clear that the losses had spread, and in the first instance to state-owned German banks. Other banks, funds and financial establishments in Europe, Asia and the US also felt the turbulence and gradually losses emerged where we perhaps least expected them. A European colleague compared the financial turbulence to a film production: It was shot in the US, premiered in Germany and is now playing all over the world. As you know, it also came to small-town cinemas in Norway last autumn. In addition to German banks, a small Danish bank and a fairly large British mortgage bank were faced with serious problems. At St James’ Park in Newcastle, advertisements for the crisis-hit British bank Northern Rock shine towards us. We are indeed witnessing crises at banks in neighbouring countries. 1  Yngvar Ustvedt (1994) “Henrik Wergeland – En Biografi”, Gyldendal Norsk Forlag A/S. 2  Source: www.dokpro.uio.no. Text from “Henrik Wergeland – Samlede skrifter”, ed. Herman Jæger, Didrik Arup Seip, Halvdan Koht and Einar Høigård, published by Steenske Publishers, 1918-1940. Poem translated by Anne Born, published in "The Army of Truth", The University of Wisconsin Press. BIS Review 18/2008  1  The turmoil spread to money and credit markets in August.
To sustain employment and productive capacity through the virus disruption, wages, leases, interest, invoices and fixed costs need to continue to be paid even as revenues collapse. Many long-term viable businesses will face cash-flow shortfalls that, unless they can be bridged, will result in redundancies, business closures and scrapping of productive assets. Signs of that are already evident. In scale, such upheaval could tear the muscle of the economy in a way that would be difficult to put back together. The scars could damage the economy’s performance for a long time to come.1 To scale the issue, we identified in May that 60% of the 85,000 biggest businesses operating in the UK – businesses accounting for an estimated 75% of turnover in the economy – will face a cash-flow deficit this year if they want to maintain productive capacity.2 [See slide 2 of accompanying deck]  Policy measures have therefore been directed towards mitigating and financing these deficits. On the monetary front, Bank rate has been cut to just 0.1%, and a programme of £ of asset purchases is underway, helping to support business cash flow by lowering the cost of servicing debts, as well as providing a stimulus to spending more broadly. The fiscal policy response has been substantial. The Coronavirus Job Retention Scheme, paying 80% of the wages of furloughed employees up to £ has helped to minimise corporate cash-flow deficits and maintain jobs.