Three quarters of the Bank’s assets is in the form of a loan to the Asset Purchase Facility backing £ of gilt holdings and £ of corporate bonds, while another £ has been lent to banks under the Term Funding Scheme (Chart 3).9 A further £ of liquidity has been extended under the so-called ‘Index Linked Term Repo’ facility, part of the Sterling Monetary Framework (SMF). Nearly all of that activity has been financed by an increase in central bank reserves (Chart 4). 8 9  Alongside meeting regulatory liquidity requirements, and deposit insurance. https://www.bankofengland.co.uk/markets/funding-for-lending-and-other-market-operations 4  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  4  Chart 3: Bank of England assets  Chart 4: Bank of England liabilities  Source: Bank of England Note to Charts 3-4: The Special Liquidity and Funding for Lending Schemes (SLS and FLS respectively) were funded through asset swaps rather than reserves, so were not on balance sheet. They are nevertheless shown for context. Although created to finance asset purchases and loans, this increase in reserves supply has also allowed us to (more than) meet a sharp pickup in the demand for reserves as a safe asset, underpinning financial stability.

1  Kevin Warsh, quoted in the FT, 7.5.17: https://www.ft.com/content/45303028-3280-11e7-bce4-9023f8c0fd2e See for instance https://www.cato.org/blog/strange-official-economics-interest-excess-reserves 3 https://www.thetimes.co.uk/article/we-were-not-asleep-at-the-wheel-bank-of-england-managers-tell-angry-mps-6pc7bnr56lf 4 https://scholar.harvard.edu/stein/publications/federal-reserves-balance-sheet-financial-stability-tool 5 https://www.brookings.edu/blog/ben-bernanke/2016/09/02/should-the-fed-keep-its-balance-sheet-large/ 2  2  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  2  Chart 2: The Bank of England’s balance sheet as a share of GDP  Source: Bank of England, available at: https://www.bankofengland.co.uk/statistics/research-datasets  Where is this all going? At one level the answer to that is simple: for the foreseeable future, the path of the Bank’s balance sheet will be shaped by the decisions of the Monetary Policy Committee (MPC) in pursuit of the inflation target given to it by Government. Whether that involves further expansion of the balance sheet, or a return to less exceptional levels (so-called Quantitative Tightening or ‘QT’), we on the Bank executive need to be ready to implement those decisions. My focus today is squarely on the latter: how we plan to implement monetary policy during QT, and the likely size of our balance sheet in the medium term. Of course, market expectations don’t point to QT starting any time soon. But those views can change rapidly. And experience from the United States and elsewhere suggests that early, clear communication about the target end-state can help stabilise expectations and increase the effectiveness of normalisation when it comes. For that reason, we launched a Discussion Paper6 last year to expose our vision of the medium-term goal to challenge and feedback. We promised to share our findings from that work7 – and that’s what I aim to do today.