Illiquid assets continue to be a small proportion of the total, generally of the order of 2%, and the houses mitigate the maturity transformation risk in holding these, and marketable assets of more doubtful liquidity (such as some emerging market instruments), by matching with long-term borrowings. What is certainly true is that the securities houses have expanded their activities enormously - with balance sheets extending to $ billion, which puts them in this respect on a par with large international banks. And, given their focus on trading activity - in money, capital and foreign exchange markets - they are, of course, huge counterparties of the banks, with very large exposures both among themselves and between them and the banks, but with the important distinction that exposures between, or to, securities houses are more typically secured. Size in any event does not in itself mean that the securities houses now have the special, distinguishing, characteristics of banks - any more than the long-term savings institutions or the money funds or indeed large non-financial corporates, which may also have huge balance sheets and which may also have large Treasury operations in-house to manage the funds for own account. Systemic risk So it seems to me that banks are indeed still special insofar as they continue to perform distinctive economic functions and insofar as their liabilities and assets still have distinctive characteristics.
The Bank’s sermons on the storms ahead would have had more influence if at the same time a collection plate was passed round the congregation so that money was available in the event that the church roof had to be replaced. But a macro prudential regime also has a key role to play in the downswing phase of the cycle. Since 2008, credit conditions have tightened, jeopardising the recovery and, in turn, threatening renewed losses for banks. By allowing banks to draw on their macro prudential capital buffers, while credit conditions remain tight, the system is counter-cyclical. In other words, a credible macro prudential regime could help forestall both excessive exuberance and unnecessary caution. By altering the pressure on the financial brakes according to circumstances, regulation, far from being an inflexible foe, would become a flexible friend. This type of regulatory regime, and its objectives and tools, are largely untried and untested. But that is not a reason for not trying and not testing. The Financial Policy Committee will be a first. Over the next few years we will put in place a framework for financial stability to  BIS Review 84/2010  3  parallel that for monetary stability. We need both. As we have seen, one without the other is not enough.