It is unlikely that the regime would have been adopted without these developments and so as and when the MPC starts to “normalise” the level of Bank Rate, the Bank is likely to review whether to retain the current “floor” system indefinitely or whether it should move to a different medium-term operating framework. One obvious option would be to return to the framework used before the introduction of QE – which was known as “reserves averaging”. That operating regime was introduced after a careful review of alternative regimes open to the Bank in the mid-2000s. But the world has changed markedly since that review was undertaken. Banks have structurally higher demand for central bank reserves than they did before the crisis, reflecting in part liquidity regulations, and as I noted earlier, a far wider range of institutions can directly access our balance sheet than was the case a decade ago. Moreover, the structure of money markets has evolved considerably over this period as banks have responded to lessons learned during the crisis and the impact of post-crisis regulation. These changes have been sufficiently profound that the Bank no longer maintains a presumption that it will return to a version of reserves averaging that existed prior to 2009. 2  See 3.1-3.4 of the September 2014 MMLG Minutes http://www.bankofengland.co.uk/markets/Documents/money/mmlgsep14.pdf.
BIS central bankers’ speeches  3  While such a decision remains possible, the choice of medium-term operating framework is now a genuinely open question and is likely to be become a key issue for the Bank as it considers the future design of the SMF. Whatever decision the Bank makes about its medium-term monetary policy framework it is likely that the floor system will be retained for some time after Bank Rate is increased from its current level. Conclusion The SMF defines how the Bank interacts with markets, when implementing monetary policy and providing liquidity insurance. It is important that we are open and accountable for the operation of the SMF. The MMLC itself and the new SMF annual review process help us achieve that aim. In recent years we have transformed the SMF, and we believe for the better. But reform of the SMF is an on-going process. As my remarks today have made clear, that process is incomplete: further changes to support liquidity insurance are in the pipeline and the Bank needs to keep under review its tools for implementing monetary policy. The Bank is both open for business and open to outside views, and we always welcome feedback from MMLC members or other interested parties on any aspect of the SMF, including at the forthcoming Open Forum. 4  BIS central bankers’ speeches