This point is not trivial. Research has shown that people who have experienced low returns throughout their lives, like the “Depression Babies” of the 1930s, report lower willingness to take financial risk, are less likely to participate in the stock market, invest a lower fraction of their assets in equities, and are more pessimistic about future returns.8 Today, uncertainty has meant an inchoate sense of economic insecurity for many people despite generalised economic prosperity. Across the advanced economies, employment appears less secure, wages more subdued, and inequality more pronounced. And its precautionary effects can mean spending is deferred because there is often a real option value to waiting.9 Firms delay investment decisions. Investors seek safe returns. Households put off buying durables. The common thread is that any economic decision that requires finance, has a sunk cost, or an uncertain payoff, is affected. While the effect on output is clearly negative, the effect on inflation is ambiguous. Uncertainty’s stultifying effects weigh on employment and aggregate demand, creating disinflationary pressures, while the freeze in resource reallocation can hold back productivity and aggregate supply, creating inflationary pressures.10 11 Higher uncertainty can also mean investment responds more sluggishly to demand stimulus.12  7  See Broadbent (2014) for a further discussion of disaster risk and what it means for safe rates. Broadbent, B (2014), “Monetary policy, asset prices and distribution”, Bank of England. See also Barro, R (2009), “Rare disasters, asset prices, and welfare costs”, American Economic Review, 99(1).

Third, the disruptive possibilities of the fintech revolution are beginning to touch the core of the financial sector. Now it is time for a similar transformation of the diversity of one of the most important sectors of the UK economy. In many respects, Jayne-Anne Gadhia’s report is long overdue. For too long the representation of women in middle and senior tiers of management has lagged that in other leading sectors. For too long, results have fallen short of good intentions. And for too long the financial sector has suffered the economic consequences of this inequality while society has borne the broader costs. Greater diversity – in all its forms, cognitive, gender, background, ethnicity, religion – can help transform the financial sector. Research has shown that companies with a significant proportion of women in senior management positions perform better in part because of some leadership behaviours that women exhibit more consistently than their male colleagues. 1 In particular, women are found to excel at people development, participative decision making, presenting a compelling vision and acting as role models – all drivers of financial performance. 2  1  http://www.mckinsey.com/business-functions/organization/our-insights/why-diversity-matters. 2  https://hbr.org/2012/03/a-study-in-leadership-women-do. BIS central bankers’ speeches  1  Research on board membership has also shown that female directors enhance board independence, partly because women bring different perspectives and networks to the table, and partly because they are more likely to ask difficult questions.