This environment is affecting firms in very different ways. Some companies find themselves with little need for external funds, and so are relatively insulated from tight credit conditions. Indeed, the corporate sector as a whole is currently running an unusually large cash surplus, despite challenging demand conditions. A notable example is energy extraction. UK oil companies have run a large cash surplus – amounting to 1-2% of GDP – for much of the past decade. This accounts for around half of the overall corporate cash surplus over the period. But it’s not just oil companies. The manufacturing sector as a whole is currently a net lender to the UK banking sector: it has more cash on deposit than funds borrowed. Other sectors look to have less healthy cashflow positions in aggregate – construction and real estate, hotels and restaurants amongst them. For many companies, therefore, external finance remains important. For large companies, the bond markets are an option. Some of you have switched the balance of your financing from the banking system to the bond markets. Over the past three years, the Chief Financial Officers of large companies have consistently rated bond finance more attractive than bank borrowing. Such firms seem, on the whole, to have made smaller cuts to investment and employment. Large companies with good access to the capital markets and healthy cash-flow positions may, for the moment, be well placed to support the financing of smaller firms.
In my opinion the protection of the rights of debtors and creditors becomes more – and not less – difficult with the development of financial markets, both in a geographical sense as well as in the range of available products (financial globalisation and innovation). The challenges posed by financial globalisation are not difficult to understand: a financial instrument originated in country A, traded in country B by an intermediary whose headquarters are in country C and purchased by an investor who is resident in country D, to what legal system will it be subject to? How will the citizen of country D be able to enforce his rights, which courts will be responsible for any dispute, what kind of legal redress will it be available on citizens of country A and B? These are questions that lie at the very heart of financial globalisation. From the simple observation that the bulk of cross border capital flows still takes place among advanced countries, one may easily surmise that such legal uncertainties (arguably more important in emerging economies) play a fundamental role in the allocation of financial flows and financial capital worldwide. Over the last years, quite a number of initiatives dedicated at enhancing legal certainty regarding such cross-border financial transactions have been undertaken on a global as well as on a European level. International bodies dedicated to the harmonisation of laws [such as  4  2  Muellbauer et al.