Financial stability is a much more difficult concept to define. You know it by its absence of course. But by then it is usually too late. So it is fair to say that over the first years of the FPC we have been ‘learning by doing’, building out our thinking on what we should care about as we have been identifying and mitigating risks – and setting out our thinking so that stakeholders understand why we have acted as we have and how we are likely to act in the future. Based on 17 possible UK financial crises between the Bank’s foundation and 1846/1847 cited in Ashton (1959), Hoppit (1986) and Dimsdale and Hotson (2014). 2 Huang and Thomas (2016). 3 Anson et al (2019) and Anson et al (2017). 1  2  All speeches are available online at www.bankofengland.co.uk/news/speeches  2  Almost exactly five years ago the FPC took its first action directed at housing related debt and, crucially, action aimed at the resilience of borrowers rather than lenders. In doing so, the FPC adopted a broad view of its responsibilities – one that went beyond the risks and resilience of the financial system to the risks of leverage in the economy more generally. I want to look today at the reasoning behind that action and the evidence that has accumulated since about the risks the FPC was aiming to contain and the effectiveness of the action it took.

We have made good progress in regulating these various FSB standards in the UK, either through Bank of England Policy statements or Prudential Regulation Authority (PRA) rules. UK banks have been given indicative MREL requirement to meet by 2020; they will have operational continuity arrangements in place in 2019 (alongside the implementation of ring-fencing); and they are already trading on protocol terms with 4  See FSB ‘Principles on Loss-Absorbing and Recapitalisation Capacity of G-SIBs in Resolution’ (2015) http://www.fsb.org/wpcontent/uploads/TLAC-Principles-and-Term-Sheet-for-publication-final.pdf. 5 See FSB ‘Guidance on Arrangements to Support Operational Continuity in Resolution’ (2015) http://www.fsb.org/wpcontent/uploads/Guidance-on-Arrangements-to-Support-Operational-Continuity-in-Resolution.pdf and FSB ‘Guidance on Continuity of Access to Financial Market Infrastructures (FMIs) for a Firm in Resolution’ (2016) http://www.fsb.org/wp-content/uploads/Continuity-ofAccess-to-FMIs-Consultation-Document-FINAL.pdf. 6 See FSB ‘Cross-Border Recognition of Resolution Action’ (2014) http://www.fsb.org/wp-content/uploads/c_140929.pdf. 7 See ISDA ‘2014 Resolution Stay Protocol’ (2014) http://assets.isda.org/media/f253b540-25/958e4aed-pdf/, ISDA ‘ 2015 Universal Resolution Stay Protocol’ (2015) http://assets.isda.org/media/ac6b533f-3/5a7c32f8-pdf/ and ISDA ‘ Resolution Stay Jurisdictional Modular Protocol UK (PRA RULE) Jurisdictional Module’ (2016) http://assets.isda.org/media/f253b540-94/cd991d70-pdf/. 8 See FSB ‘Guiding Principles on the Temporary Funding Needed to Support the Orderly Resolution of a Global Systemically Important Bank (“G-SIB”)’ (2016) http://www.fsb.org/wp-content/uploads/Guiding-principles-on-the-temporary-funding-needed-to-support-theorderly-resolution-of-a-global-systemically-important-bank-“G-SIB”.pdf and FSB ‘ Funding Strategy Elements of an Implementable Resolution Plan’ (2017) http://www.fsb.org/wp-content/uploads/301117-2.pdf. 4  All speeches are available online at www.bankofengland.co.uk/speeches  4  buy-side firms as well as other G-SIBs. To the point that resolvability is progressive, the major UK banks on average now have total loss absorbency of 23% measured against risk-weighted assets (RWAs) compared to an average end-state requirement of 28% (including buffers).