Minouche Shafik: Goodbye ambiguity, hello clarity – the Bank of England’s relationship with financial markets Speech by Ms Minouche Shafik, Deputy Governor for Markets and Banking of the Bank of England, at the University of Warwick, Coventry, 26 February 2015. * 1. *  *  Introduction  I’d like to talk to you this evening about the Bank of England’s relationship with financial markets. In particular: how we use our balance sheet and how we gather market intelligence. I appreciate my saying that may immediately make you regret giving up your Thursday evening to hear a central banker speak! But let me make the case that the central bank’s balance sheet and the way we understand financial markets is at the very heart of modern policy making. And let me also argue that the journey from “constructive ambiguity” toward greater clarity around how we interact with markets is essential for the effectiveness of a modern central bank. The Bank of England’s balance sheet is the means by which we create money and hence the source of our monetary policy responsibilities. It is the vehicle through which we provide liquidity insurance to the financial system, a crucial part of our financial stability objective. And it is the point at which the implementation of macro policies meets the micro-reality of interactions with individual institutions. In all of these the Bank has proven agile in its ability to respond to the financial crisis and the changes in its responsibilities.

(c) Proxied by: Bank of England balances + money at call + eligible bills. (d) Cash + Bank of England balances + eligible bills. Figure 4: Sir Nigel Althaus (left), Senior Broker to the Commissioners for the Reduction of the National Debt, 1982–1989, with Roger Daniell (right), his deputy  BIS central bankers’ speeches  9  References Warsh, K. (2014) “Transparency and the Bank of England’s Monetary Policy Committee”, http://www.bankofengland.co.uk/publications/Documents/news/2014/warsh.pdf. Bagehot (1873) “Lombard Street”, John Wiley & Sons, Inc. Carney, M (2013) “The UK at the heart of a renewed globalisation”, http://www.bankofengland.co.uk/publications/Documents/speeches/2013/speech690.pdf. Carney, M (2014) “One Mission. One Bank. Promoting the good of the people of the United Kingdom”, http://www.bankofengland.co.uk/publications/Documents/speeches/2014/ speech715.pdf. Clapham, J, (1944) “The Bank of England A History,” Cambridge University Press. Fisher, P (2010) “Managing Liquidity in the System: The Bank’s Liquidity Insurance Operations,” http://www.bankofengland.co.uk/archive/Documents/historicpubs/speeches/ 2010/speech450.pdf. Fisher, P (2012) “Liquidity support from the Bank of England: The Discount Window Facility,” http://www.bankofengland.co.uk/publications/Pages/speeches/2012/561.aspx. Giuseppi, J (1966) “The Bank of England”, Evan Brothers Limited. Hauser, A (2014) “Lender of last resort actions during the financial crisis: seven practical lessons from the United Kingdom,” in: Rethinking the lender of last resort, BIS Papers, No. 79, pp 81–92. Plenderleith, I (2012) “Review of the Bank of England’s Provision of Emergency Liquidity Assistance in 2008–09”, http://www.bankofengland.co.uk/publications/Documents/news/ 2012/cr1plenderleith.pdf. Tucker, P (2004) “National Association of Pension Funds Investment Conference: Keynote Speech,” http://www.bankofengland.co.uk/archive/Documents/historicpubs/speeches/2004/ speech216.pdf. Tucker, P (2014) “The lender of last resort and modern central banking: principles and reconstruction,” in: Rethinking the lender of last resort, BIS Papers, No. 79, pp 10–42.