Of course, there is plenty still left to do with parts of the City still among the poorest in the UK. But compared with when I last visited a few years ago, there is now a real sense of opportunity and optimism in Bradford, lifting the spirits of the businesses operating here and the people living here. Regional visits such as these are the most useful and most interesting part of my job. Over the course of two days, I will speak and listen to over two dozen businesses of all shapes, sizes and sectors. I will speak and listen to a number of charities, not-for-profit enterprises and schools. I will do a walkabout in Sunbridge Wells, an underground parade for retail and leisure and a great example of that civic investment and entrepreneurial spirit operating once again in the City. And I will have with me a film crew, distilling some of the key bits of my visit to a wider audience across the whole of the UK. This is part of a renewed effort by the Bank, under Mark Carney’s leadership, to engage with as wide a cross-section of people, and as broad a range of views, as possible. Events of the past twelve months – indeed, events of the past twelve days – have illustrated just how important it is for policymakers to do so.
This needs to be more than feeding a handful of macroeconomic assumptions into a model. It requires an understanding of the events that could lead to that macroeconomic outcome, and what other indirect effects might be likely to occur. Who should be responsible for regular, thoughtful stress testing? Risk managers, CEOs, and boards of directors should all understand key risk drivers – and should consider whether a stress scenario is sufficiently severe, and whether the direct and indirect effects are reasonably captured. Rating agencies and stock analysts should be increasingly demanding better quality stress tests, and that the results be made available to them. Finally, regulators should be able to compare and contrast the quality of stress tests across organizations and hold accountable those organizations that are not keeping up with their peers. As I mentioned at the outset, challenging assumptions and understanding risks should not only be the responsibility of the risk manager. These things also need to be better ingrained in CEOs, members of boards of directors, and regulators. Operationalizing this point is not going to be easy, but it is critical. At a fundamental level, debunking a myth requires individuals to go against strongly and widely held beliefs, to convince decision-makers, and to build consensus. For this to happen we may need significant changes in the governance of risk management at banks and other parties in the financial system.