It was vitally important that the Monetary Policy Committee was able to introduce a new policy instrument at the point at which Bank Rate reached its effective lower bound. This instrument had to be credible, both in terms of its economic impact and the willingness of the Committee to use the instrument in force. My own view is that the speed with which the asset purchase programme was introduced and the scale of the programme played an important role in reaffirming the MPC’s commitment to achieving the inflation target and reinforcing the belief in our ability to do so. 4  See, for example, Thomas (1997). 5  See Fisher (2010) for a more detailed discussion of these operations. 4  BIS Review 29/2010  Estimating the effects so far So what impact have our asset purchases had to date? That’s the two hundred billion pound question. Unfortunately, it is hard to provide a definitive answer. To be clear this is no different from our inability to assess precisely the impact of the reduction in Bank Rate from 5% to 0.5%. Or indeed of any macroeconomic policy measure. Without knowing what would have happened in the absence of a policy action, it is not possible to identify its incremental impact. But what is different is that this policy instrument is relatively untried and untested. So the demand to provide some insight into its impact is that much greater. This demand is quite understandable, but difficult to satisfy.
With the aid of international rating agencies and global issue managers, corporate entities on their part are raising funds wherever it is priced most cheaply and available with minimal hassle. On the demand side, investors recognize the importance of global liquidity and market diversification. By taking  BIS Review 31/2002  1  advantage of the financial links provided by intermediaries, retail investors have become empowered to actively manage a global portfolio of investments. In this environment, no single national regulator can afford to focus just on activities taking place in its domestic markets. To achieve the objectives of investor protection and systemic stability, cross-border regulatory cooperation is imperative. The Sep 11 incident demonstrates the degree to which financial markets are interwoven and illustrates the need for such collaboration. All of you will recall that the event resulted not just in the closure of US markets for 4 working days, but also justified the temporary closure of several markets in Asia, while delaying trading hours in others. The reality was that regulators the world over found themselves having to assess the situation, update one another, and decide on actions to be taken in their respective markets. Systemic risk has also increased with the trend towards commoditisation, ie volume business at competitive costs. The concentration of volumes into key nodes such as large global custodians represents exposure by market participants to entities located in other jurisdictions. Meanwhile, crossborder capital flows have significantly increased the magnitude by which markets adjust to shocks as evidenced in the Asian crisis.