That is all about maintaining the resilience of firms as and when the environment proves more threatening than catered for in the standard, static regulatory requirements. There is also the possibility, argued by Governor Carney of the Bank of Canada, that maintaining appropriate minimum margining requirements across the cycle would help to prevent liquidity spirals in key funding markets.9 The Basel Committee of the Global Financial System, when under the chair of my new colleague Don Kohn, has published a review of this important area.10 The interim FPC will have to advise HMG over the next year or so on which instruments in particular we think we should be granted by Parliament. In their different ways, as well as making the system more resilient, they would have the effect of intervening in the (real) credit cycle. And so, in some degree, this endeavour recovers something of the spirit of the Real-Bills Doctrine disciples of a century ago. In consequence, this part of the macroprudential scene has, naturally, posed questions about how it will interact with the setting of monetary policy. Not that the nominal business cycle and the credit cycle are the same thing or always perfectly aligned. In the years during which the latest crisis was brewed, credit conditions were plainly too loose, but the UK did not obviously experience burgeoning nominal demand growth or upward pressures on underlying inflation. Nevertheless, influences will obviously flow in both directions.
The FPC might well find itself wanting the Bank executive to take an issue with EU-wide ramifications to the ESRB or to the European Banking Authority, Markets Authority or Insurance Authority. And sometimes the FPC may find itself wanting to follow up an EU-wide recommendation from the ESRB. BIS central bankers’ speeches  11  Co-operation will be especially important in the deployment of “cyclical” instruments. If one country tightens capital or liquidity requirements on exposures to its domestic economy, the effect will be diluted if lenders elsewhere are completely free to step into the gap. Basel and the EU are addressing how to handle that where the instrument is the Basel 3 Countercyclical Buffer. But we need to explore whether other potential instruments should be subject to similar rules of the game. This is not like monetary policy with a floating exchange rate. The big challenges The reform of the financial system is a global endeavour. Much of it is about strengthening existing regimes. But two parts of it are essentially new. One, on which I spend a good deal of my time, I have not discussed this evening: building effective resolution regimes for the world’s largest and most complex firms.12 The other new challenge is building macroprudential regimes. This is about plugging a gap between microprudential regulation and macroeconomic policy.