It also has the ability to make Recommendations within the Bank, to HMT and to any other person, with a view to achieving its statutory objectives. 2  All speeches are available online at www.bankofengland.co.uk/speeches  2  The post-crisis reforms embody the lesson of that: keep up… …with the risks the system faces. And with the shape of the system as it shifts. To keep the system capable of serving in the bad times as well as the good. Today – declaring my obvious conflict of interest – I want to look back to consider how, over five years, we’ve got the system to a place where it can serve the economy in bad times as well as good. And then I want to look ahead, to the macro trends of Brexit, borrowing and the unbundling of banking and the challenges they present to keeping up. Looking back, we have largely corrected the fault lines that underlay the crisis. In particular, the banking system has been strengthened. Not everyone agreed it should be strengthened so much. But it was obvious that it needed to happen. The economic costs of major banks getting into distress are vast. So they must be able to withstand – and keep lending through – even very severe and rare economic events. That’s why we stress test them to economic scenarios more severe than the financial crisis. It’s why the largest banks must fund themselves with 10 times more capital than they did before the crisis.
There is no rule book that’s good for all seasons, let alone all time. So the new system hardwired in the duty to look up and out and to adapt. The financial crisis had laid bare a failure to do that across advanced economies. Regulation hadn’t kept pace with the risks the system faced, from over-inflated housing and financial markets in the United States to a commercial real estate boom in the UK. Nor had it kept pace with the way the system worked; with securitisation, SIVs and CDS. The result is worth etching in our collective memory. A near collapse of the financial system and a sideswiping of the global economy of epic scale. In the UK alone, a million more people unemployed. And lost income over time equivalent to a bill of £ for every person in Britain. 3  1  The Bank of England’s Financial Policy Committee identifies, monitors and takes action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the UK financial system. The FPC is not authorised to take action that is “likely to have a significant adverse effect on the capacity of the financial sector to contribute to the growth of the UK economy in the medium or long term”. 2 The FPC has specific powers of Direction over the Prudential Regulation Authority and Financial Conduct Authority and the ability to make Recommendations (including on a ‘comply or explain’ basis) to both authorities.