But ordinary circumstances can’t be guaranteed, and in the events of 2007 that I outlined earlier we saw unprecedented circumstances. It is in such unprecedented circumstances that the Bank’s role of providing liquidity insurance to solvent but illiquid banks is most apparent. But what has emerged from the experience of 2007 and 2008 is a liquidity policy framework and set of tools which can be applied in good times as well as bad. It is a framework which is consistent with Walter Bagehot’s advice to the Bank in the Victorian era – that the Bank should seek to avoid reaching the panic points of no return with its banks by lending to them “quickly, freely, and readily”. 11  In 2006, the Bank had two facilities for providing liquidity insurance, both of which functioned in the course of monetary policy implementation. 12  Now, in 2018, the tools in our kit – the Sterling Monetary Framework - are 13  much expanded. Some crisis tools, such as the Special Liquidity Scheme , have been superseded by this more comprehensive framework. In an important review published six years ago in October 2012, Bill Winters took stock of the progress made in reforming the SMF. 14  The Bank refined the framework further in  response, and five years ago the Governor emphasised that we were “open for business”.

Bank of England Staff Working Paper No. 624, available at https://www.bankofengland.co.uk/working-paper/2016/qe-the-story-so-far. The debate about the precise effects of QE continues; for two recent contributions by my MPC colleagues, see Vlieghe, J. (2018), “The yield curve and QE”, speech at Imperial College Business School available at https://www.bankofengland.co.uk/-/media/boe/files/speech/2018/the-yield-curve-and-qe-speech-by-gertjanvlieghe.pdf, and Broadbent, B. (2018), “The history and future of QE”, speech at the Society of Professional Economists available at https://www.bankofengland.co.uk/speech/2018/ben-broadbent-society-of-professional-economists. 9 For more on the TFS see the information on the Bank’s website at https://www.bankofengland.co.uk/markets/quantitative-easing-andthe-asset-purchase-facility. The Bank also lent directly to banks via the Funding for Lending Scheme (FLS) in 2012, a scheme designed to incentivise banks to lend to the real economy at a time when bank lending growth had been persistently very weak, not least because of spillovers from the euro area crisis. But this was a fully collateralised scheme, classified as off balance sheet under a collateral swap arrangement. For more on the FLS see Churm, R. et al (2012), “The Funding for Lending Scheme”, Bank of England Quarterly Bulletin 2012Q4, available at https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2012/the-funding-for-lending-scheme.pdf. 5  All speeches are available online at www.bankofengland.co.uk/speeches  5  10  in wholesale markets. The latter is typically at a shorter term than the former, so this activity exposes banks to funding liquidity risk. Banks need to be able to take on this risk to execute their economic function. But it remains a risk nonetheless. Under ordinary circumstances, banks should largely be able to self-insure against this risk; indeed, that is a core part of effective bank risk management.