Financial risk management – though always core to the Bank’s thinking – was not a particularly complex or resource-intensive activity. 1  For more on this issue, see for example ‘Central bank financial strength, transparency and policy credibility’ by Peter Stella (IMF Staff Papers, Vol. 52, No.2), available at https://www.imf.org/external/pubs/ft/wp/2002/wp02137.pdf and ‘Central bank finances’ by David Archer and Paul Moser-Boehm (BIS Papers, No.71), available at www.bis.org/publ/bppdf/bispap71.htm. 2 See page 31 of the Bank of England Report and Accounts 1985 (http://www.bankofengland.co.uk/archive/Documents/historicpubs/ar/1985accounts.pdf) and Balluck, K, Galiay A, Ferrara, G and Hoggarth, G (2016), ‘The small bank failures of the early 1990s’ (http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2016/q1/a5.pdf). 4  All speeches are available online at www.bankofengland.co.uk/speeches  4  Chart 2: Bank of England balance sheet  Chart 3: Federal Reserve and Bank of England balance sheets compared  Percentage of annual nominal GDP(a) 30  30  Percentage of annual nominal GDP  30  World War II  World War I  25  25 25  20  US Federal Reserve (b)  25  20 20  15  15  10  10  5 0 1830  30  1860  1890  1920  1950  1980  2010  Sources: Bank of England, ONS (a) Data as at February. Final data point shows the latest published balance sheet data, at 29 February 2016, plus the increase in the loan to the Asset Purchase Facility since this time. Excludes TARGET balances held at the Bank by European central banks in 1999-2001.

And operational reforms designed to address the deficiencies in the Bank’s pre-crisis lending tools and flag 5  clearly that the Bank was ‘open for business’ , have left the Bank capable of lending to a wide range of banks and non-banks, against many different types of collateral, at lower prices, and through a broad range of facilities. As of 2016, members of the Bank’s Sterling Monetary Framework – our main liquidity-providing tool – had pre-positioned over £ of collateral with us, including 30% of the UK’s total stock of household mortgage loans. Only a fifth of that collateral had been drawn against, through the Funding for Lending Scheme and other Bank facilities. Even after accounting for the Bank’s sizeable haircuts, that leaves well over £ of available credit: a much higher proportionate level of contingent exposure for the Bank than typically incurred by commercial banks through undrawn facilities. So our balance sheet may expand in both scale and riskiness at times of heightened liquidity stress: the Bank of England’s role as financial firefighter has shifted permanently upwards (Chart 5). 5  See http://www.bankofengland.co.uk/publications/Documents/news/2012/cr2winters.pdf; and the Bank’s new framework at http://www.bankofengland.co.uk/markets/Documents/money/publications/liquidityinsurance.pdf. The reforms are summarised in a speech by the Governor at http://www.bankofengland.co.uk/publications/Pages/speeches/2013/690.aspx. 6  All speeches are available online at www.bankofengland.co.uk/speeches  6  The third key driver behind our new risk framework has been the strong public demand for greater accountability and transparency from central banks since the financial crisis.