There are many aspects of the reform package that the PRA is taking forward this year through its own consultations. This package includes some new supervisory measures to help the PRA maintain safety and soundness and policyholder protection. These new measures provide additional tools and clearly complement our existing set of supervisory powers. As a reminder, the measures set out by HMT are:  Page 7  to require insurers to participate in regular stress testing exercises prescribed by the PRA and to allow us to publish individual firm results; to require nominated senior managers with formal regulatory responsibilities and sanctions under the Senior Managers Regime to attest formally to the PRA whether or not the level of the fundamental spreads (FS) on their firm’s assets is sufficient to reflect all retained risks, and that the resulting MA reflects only liquidity premium, on the basis of a rigorous assessment of the characteristics and valuations of assets held in their matching adjustment portfolios, including the results of the stress testing exercises described above; to allow insurers to apply a higher FS where they conclude that the standard allowance is insufficient taking into account the work undertaken to support the attestations set out above; and to update the MA rules as appropriate to reflect the Government’s decision to widen the eligibility requirements to include assets with highly predictable cashflows. We are approaching the development of these supervisory measures with input from subject expert groups with a membership drawn from industry and the PRA.
Moreover, the ultimate aim of the policy is to get the annual rate of growth of nominal spending in the economy back to the 5% or so that it averaged during the first decade of the Monetary Policy Committee’s existence and which is consistent with inflation at target and growth at trend. In contrast, over the past year, nominal spending has fallen by roughly 5% (Chart 8). The £ billion of asset purchases has been calibrated with this in mind, though it will be some while yet before we know how effective the policy has been in achieving the objective. Indeed, the truth is that we will probably never know exactly how effective the policy of Quantitative Easing has been, for the simple reason that we can never know with precision what would have happened in its absence. My only confident prediction is that academic economists and their PhD students will be poring over the topic for decades to come. To conclude, I want to return to some accounting issues. As I noted earlier, the Asset Purchase Facility is set up as a separate entity, indemnified by the Treasury. The Bank is committed to transparency about its operations, and we will be publishing annual accounts for the Asset Purchase Facility, drawn up in accordance with established international accounting principles. The Asset Purchase Facility receives coupon payments from the government on the gilts it holds, as well as some income from its small holding of corporate assets.