So between the mid-1990s and the financial crisis, the UK experienced a very powerful financial cycle – a long build-up of credit to the private sector followed by a sharp correction that has reversed some but not most of the preceding credit growth. There were of course other important elements such as lending overseas and between banks, and some would argue lending to governments. But I want today to focus on credit to the UK private sector, particularly household credit. I want to look at what lay behind the upswing of that cycle, the marked rise of credit to GDP since 1997. This is of more than academic interest. We are back to early 2000s levels of credit  1  See Schularick and Taylor (2012). BIS central bankers’ speeches  1  and debt in the economy. We are now emerging from the post crisis period of credit contraction; in the UK credit slowly began to grow again around 2012. It is now growing at almost the same rate as the economy. So now is a good time to ask: what lay behind the very rapid expansion of credit from the mid1990s to the crisis? Should we expect – or want – credit growth to return to its pre-crisis path, growing more than twice as fast as GDP? This is an important question for the Financial Policy Committee of the Bank of England as it assesses the risks to the stability of the UK financial system – where we are in the so-called “financial cycle”?
It is essential for the financial sector to manage climate-related risks, while at the same time, support the economic transition. This means financial institutions have to internalize climate considerations into their business operations and risk management framework and offer financial products and services to help business transition especially in the high-emission and vulnerable sectors without disrupting the economy and leaving someone behind. However, there is no denying that financial sector has substantial gaps and challenges to overcome in order to achieve such goals, particularly on the risk management perspective. Financial sector resilience would be undermined by the climate-related risks without appropriate measures in a timely manner. Thus, central banks and financial regulators have a crucial role in building capacity and facilitating guidelines and tools needed for climate-related and environmental risks. The first step should be providing concrete expectation and guidance for financial industry to uplift their business operations, risk management, and disclosure that align with international standards. Simultaneously, the infrastructures and common tools for climate risk management such as climate scenario analysis, stress test, and climate-related data  1/2  BIS - Central bankers' speeches  must be put in place to create an enabling ecosystem where financial institutions and regulators could assess and monitor the risks effectively. Ladies and Gentlemen, Looking ahead, it is thus inevitable that our regulatory and supervisory frameworks should take into account sustainability and climate-related factors. The conduct of prudential framework in this new landscape will arguably be the most difficult task as it is relatively new and still evolving.