Chart 4: Pre-crisis growth in UK banks driven by  Chart 5: Losses predominantly global  overseas assets  Sources: Office for National Statistics and Bank of England. Sources: FSA regulatory returns, published accounts and Bank of England calculations. Data for 2008H2-2011H1. Goodwill impairments are calculated on a pro-forma basis and may be subject to error. Impairments and write-offs are taken from FSA regulatory returns. Due to sampling and definitional differences, these may not match those disclosed in published accounts or in the Bank of England’s Bankstats. No financial crisis is exactly like another – it is now a cliché to compare them to Tolstoy’s unhappy families – and I’m certainly not suggesting that domestic lending is unimportant or that the risks involved are entirely immune from domestic interest rates. But I do think that the effect is less marked the more financially open an economy and that the spillover effect of monetary policy – its impact on financial stability relative to that on inflation – may not be that large. If so, you’d have to pay quite a high price, in terms of output and inflation, for interest rates to be of any material help in containing independent swings in financial risks. More careful studies bear this out. In 2010, my predecessor Charlie Bean estimated that, even had UK Bank Rate been 100bp higher from 2005 this would’ve reduced banks’ balance sheets only by 3% by 2008.

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