(2022), “Finding the right sequence”, speech at a virtual policy panel on “Unwinding QE” at the first annual Bank of England Agenda for Research (BEAR) conference, Frankfurt am Main, 24 February. There are attempts to quantify the equivalence between changes in the balance sheet and interest rates, see Wei, B. (2022), “Quantifying “Quantitative Tightening” (QT): How Many Rate Hikes Is QT Equivalent To?”, Working Paper Series, No 2022-8, Federal Reserve Bank of Atlanta, July. 13. See Krishnamurthy, A. and Vissing-Jorgensen, A. (2011), “The effects of quantitative easing on interest rates: channels and implications for policy”, Brookings Papers on Economic Activity, 42 (2). 14. See Lee Smith, A. and Valcarcel, V. (2023), “The financial market effects of unwinding the Federal Reserve’s balance sheet”, Journal of Economic Dynamics and Control, Vol. 146, January. 15. There were periods of liquidity stress in late 2019 that can also be attributed to the banks’ desire to match the maturity of assets and liabilities after the QE-implied increase in central bank reserves. However, they did not increase the maturity of their liabilities once QT was underway. See Acharya, V. V. et al. (2022), “Liquidity Dependence: Why Shrinking Central Bank Balance Sheets is an Uphill Task”, paper presented at the Federal Reserve Bank of Kansas City’s Jackson Hole Economic Symposium, August. 16. Estimates of the term premium from other models, such as the decomposition provided using the method proposed by Kim and Wright, lead to qualitatively similar conclusions.

We are seeing signs that international banks are delving into the digital asset custody services space, with offerings such as structured products and trading in crypto derivative markets. Through distributed ledger technology, blockchain platforms enable banks to offer payments capabilities for settlement through tokenised assets. Crypto assets are rapidly growing, offering decentralised finance. As recent turmoil in digital asset markets have illustrated, the waters between where we are now and a digitalised world are particularly choppy. Established banks must not let commercial pressure to adopt new technologies or enter digital asset markets get in the way of first ensuring that they can properly understand and manage the associated risks. I would place particular emphasis on our operational resilience expectations and how banks should use these to inform technology investment decisions. As regulators we are considering the impact of technological developments on the sector and the future of finance, both for new entrants and existing entities. Our operational resilience expectations help in this regard. But we also want to see firms working together on market disciplines towards operational resilience in the financial sector. A good example is critical thirdparty providers, a subject on which HMT published a policy statement. [3] In the new world, relationships with critical third-party suppliers are becoming as important as the relationships with large financial counterparties that international banks had established over many years. That is a sign of the rising prominence of operational vs. financial matters in that new world – less of an afterthought.