In my opinion, the leverage ratio is a welcome complement to the risk-based capital measure. The Basel Committee’s agreement means that we now have a common method for calculating the leverage ratio, which we did not have before. This is good. The agreement on the leverage ratio is therefore a major step forward. The regulations for the structural liquidity measure, the NSFR, complete Basel III The fourth measure in Basel III is thus the structural liquidity measure, the NSFR. The aim of the NSFR is to ensure that the banks fund their operations with sufficient long-term and stable funding so as to reduce the risk of being hit by funding and liquidity problems. The NSFR thus constitutes an important complement to the short-term LCR measure that aims to protect the banks when, in some sense, liquidity stress is already a fact. The NSFR is the component of the Basel III framework that has not yet been finalised. Finalising the regulations for the NSFR is one of the Committee’s most important priorities for 2014. This will in principle mark the completion of the work with the entire Basel III regulatory framework. As part of this work, the Committee recently published a revised proposal for the NSFR for stakeholders outside the Committee to comment on. In connection with this the Committee reiterated that it intends to introduce the NSFR as a quantitative requirement from 1 January 2018.
The MPC slashed Bank Rate as low as it has ever been in the Bank’s 320-year history. To bolster demand further, we then injected new money worth around a quarter of annual GDP through asset purchases. But despite the dosage, output is only now approaching its previous peak. This evening, I will reflect on some of the innovations in monetary policy that took place as a result of the crisis. Then I will look at some of the broader changes in the framework it prompted. Dealing with the crisis led central banks to innovate in several ways. In the first instance, this involved lending at longer tenors, against a wider range of collateral, and to a wider range of counterparties in order to keep financial markets functioning. For our part, as well as offering longer-term funding through our repo operations, we also introduced the Special Liquidity Scheme (SLS) enabling banks to borrow liquid Treasury Bills against their illiquid mortgagebacked securities. Later we introduced the Funding for Lending Scheme (FLS), providing banks with cheaper funding and a financial incentive to expand lending. Some of these facilities have since been made a permanent feature of our Sterling Monetary Framework. Others, such as the SLS and FLS, are by their nature temporary. More noteworthy from a monetary policy perspective, though, was the use of unconventional tools to inject further stimulus when policy rates approached their zero lower bound.