By including the NSFR in the suite of regulatory metrics, it would have been possible to capture the risks that Countrywide was undertaking without resorting to materially more stringent capital regulation. By contrast, Belgian bank KBC Group had an NSFR of 1.12, above the current indicative regulatory standard. For that time, it also had a reasonable risk-weighted capital ratio of 8.7%, well above the median capital ratio in the sample. But its leverage ratio was 3.5%. A system of regulation excluding the leverage ratio would have been unable to capture risks of the type KBC Group was undertaking prior to the crisis. 25  All speeches are available online at www.bankofengland.co.uk/speeches  25  The message from this counterfactual exercise, for all its obvious imperfections, is that multiple regulatory metrics may have helped historically in capturing the multiple dimensions of risk and uncertainty exhibited by banks pre-crisis. With the benefit of hindsight, multiple metrics would have helped identify most failing banks, without either high false alarm rates or potentially punitive calibrations of regulatory standards. While the exercise is based solely on survival and failure of banks during the global financial crisis, it highlights how a small regulatory portfolio beats, counterfactually, a single stock in (systemic) risk and (capital) return terms. As Greenwood et al (2017) argue, multiple regulatory constraints come at a cost by curtailing business models and thus reducing diversity in the financial system. Excessive homogeneity of the financial system can create systemic risks (Haldane (2009a), Wagner (2010)).

36  All speeches are available online at www.bankofengland.co.uk/speeches  36  (c) Models of Financial Stability: In a world of monetary, macroprudential and microprudential policy, all having an impact on the economy and on the financial system, there is an increased onus on developing quantitative frameworks which enable us to understand their impact, individually and collectively, and their interaction (Bank of England (2015b)). That calls for models able to capture quantitatively monetary, financial and regulatory channels of transmission and the feedback mechanisms between them. Progress has been made, in particular since the crisis, in developing macro-models with an explicit financial sector which can capture rich, two-way feedbacks between the economy and financial system (for example, Brunnermeier et al (2012), Brunnermeier and Sannikov (2014)). There has been progress, too, in developing models of systemic risk which assign macroeconomic factors, and within-system feedbacks, a prominent role (Greenwood et al (2014), Cont and Schaanning (2017)). Yet we are still probably in the foothills when developing a unified framework for bringing these factors together in one place, a framework that could capture the rich feedback and amplification mechanisms that operate in practice and a model which could then serve as a test-bed for each of the three arms of policy. Indeed, it could be that a single, Holy Grail, framework is infeasible or indeed undesirable. (d) Future of Stress-Testing: Bank stress testing has evolved considerably since the financial crisis and is now a cornerstone of the regulatory regime in many jurisdictions.