Jon Cunliffe: Macroprudential policy – from Tiberius to Crockett and beyond Speech by Sir Jon Cunliffe, Deputy Governor for Financial Stability of the Bank of England, at TheCityUK, London, 28 July 2015. *  *  *  Historians still argue about the exact causes of the financial crash of AD 33 that rocked the Roman Empire. The commentators of the day did not unfortunately have, let alone record, the vast amounts of data that we have become used to today. But in a world still painfully extricating itself from the crash of 2008, the key features look eerily familiar, as a number of modern day commentators have observed. An extension of credit across the empire, a sudden deleveraging, debtors failing and bank closures in a number of Roman provinces, the total drying up of liquidity in the financial system and widespread panic. The remedies look familiar too. The Emperor Tiberius was not able to rely on a modern independent central bank with the ability to print money to staunch the crisis. But notwithstanding that immense shortcoming, Tiberius took effective action, injecting into the system a huge amount of liquidity stored in coin in his treasury, setting interest rates at zero for a three year period – an early example of forward guidance – and doubling loan to value requirements for property loans. He also executed those he thought most responsible: though some might advocate that today, I think in that respect at least we have moved on from AD 33.
Strong sustainable growth requires not only a strong and vibrant financial system; it requires the controls and safety buffers to ensure that the  3  For more information on UK-owned banks’ overseas exposures see Broadbent, B (2012) ‘Deleveraging’, speech at Market News International, 15 March. 4  The Chancellor has recently asked the Governor of the Bank of England, working with HM Treasury, to initiate research to create better measurement of ‘finance for productive investment’ covering all asset classes and all stages of finance, with a view to publishing the data on a regular basis. See “Fixing the foundations: creating a more prosperous nation”, HM Treasury, July 2015. 8  BIS central bankers’ speeches  dynamics of the system do not generate periods of illusory growth and prosperity followed by periods of destruction of the same. The financial system has come a long way since the time of Emperor Tiberius. While we have relearned some familiar lessons in recent years, we have also learned some new ones. We have had to develop a new regulatory framework, macroprudential institutions like the FPC and new policy approaches. Over the next few years we will certainly need to refine all of these. The implementation of the detailed reforms will inevitably throw up unforeseen effects in particular places and where it is justified we will need to revisit issues. But we should be careful about talking about turning back the overall regulatory dial or trying to trade off the risk of financial instability for short term growth.