As prudent regulators we cannot bank on the monetary and fiscal firefighters always being able to deploy as many resources to douse the flames of a future crisis. Rather we should follow John Dewey’s maxim to reflect on the experience we gleaned from this fire before the next one starts. Otherwise, we may live to regret it. Thank you. 13  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  13  Annex Table 1: Baseline results on CCYB releasability CET1 ratio Mortgage lending (%) flows (%) (1) (2) Post-Covid x Dummy if bank has high CCyB pass through rate Post-Covid x Dummy if bank has low prepandemic effective surplus Bank controls Bank FE Time FE No. of observations R2 (Within)  Non govt. guaranteed lending flows (%) (3)  -0.946**  0.574  0.767  (0.047)  (0.848)  (0.818)  0.377  -1.331  -14.369*  (0.345) Yes Yes Yes 795 0.433  (0.440) Yes Yes Yes 212 0.082  (0.070) Yes Yes Yes 228 0.084  Notes: A “high CCyB pass through rate” bank is one with more than 50% pass-through rate in 2019. ***/**/* indicate significance at the 1%, 5%, and 10% level respectively. P-values reported in brackets are based on bank clustered standard errors. All columns contain bank and time fixed effects.
This is especially the case if no other firm in their peer group is subject to these measures, creating a collective action problem: firms, acting out of perceived individual interest, may choose to restrict their lending to the real economy rather than dip into their CCoB. But actions that can seem rational for each firm individually can prove damaging in aggregate for the economy and banking system as a whole. By way of illustration: stress tests carried out by the Bank of England in the early phases of the Covid crisis suggested that the direct gain to banks of preserving capital by not lending were small – adding c. 0.1 percentage points in capital ratio terms. In contrast, they showed that the costs to the wider economy, and ultimately the banking system, from not lending could be very large: reducing aggregate bank capital ratios by as much as 0.8 percentage points due to negative feedback to banks’ credit exposures from worse unemployment and corporate insolvency outturns over time when lending is restricted.11 Finally, just before management buffers are Countercyclical Capital Buffers (CCyB) which, when non-zero, operate as an extension of the Capital Conservation Buffer and can be released during generalised stresses.12 The key issue here is that there may be stigma associated with use of a regulatory buffer.