And given the interconnected nature of these markets, this is not a purely domestic challenge: UK borrowers are exposed to any deterioration in global risk appetite. One potential trigger for loss of investor appetite is so called ‘fallen angels’ – companies whose credit has been downgraded to sub-investment grade. This is a vulnerability the FPC keeps an eye on, as it could have amplifying effects – with forced selling and many investors scrambling to sell assets at the same time, either because investment mandates prevent them from holding such bonds, or to avoid higher capital requirements associated with riskier debt. There are various international and domestic efforts underway to improve our understanding of market based finance and to make it more resilient to stresses. The Bank, for example, is currently working on a system-wide exploratory scenario to consider bank and non-bank behaviour in a severe but plausible market stress, as well as the potential consequences of their actions. Corporate debt and sustainable growth I’ve talked about why the FPC cares about the supply of finance to corporates under its primary objective for financial stability. But in addition, and subject to meeting that objective, we also have a secondary objective to support the Government’s economic policy – sustainable economic growth. [4] Of course financial stability is a prerequisite for sustainable growth, so pursuing our primary  Page 9  objective helps us meet our secondary one. But the secondary objective broadens our interests in corporate finance.
Page 1  Investing in financial stability − speech by Sarah Breeden Given at the Insolvency Practitioners Association annual conference  Page 2  Published on 27 April 2023  Sarah Breeden discusses why we monitor corporate debt given its impact on financial stability. She goes on to explain how the financial system can assist longterm productive investment and where it can do more to support business investment. Speech Introduction I suspect I won’t need to convince this audience of the importance of corporate debt and financing conditions. What I’d like to do instead is explain why the Financial Policy Committee (FPC) cares about them. The FPC has two objectives: a primary one to maintain financial stability, and a secondary one to support economic growth. The supply of finance to the corporate sector touches on both. For our primary objective we look to ensure that risks to financial stability aren’t generated by excessive levels of corporate debt – where indebtedness might build in an upswing and lead to a damaging credit crunch in a downturn. And for our secondary objective we want to make sure the financial system is supplying enough long-term, stable funding to allow businesses to make productive investments, and finance major economic transitions such as the journey to net zero. So, in both cases, stability is our watchword. We are aiming at a supply of business finance which is stable through the economic cycle – avoiding damaging swings from credit boom to bust.