28  For further details, see the minutes of the June 2018 MPC meeting. See for example the consultation paper, archived at http://webarchive.nationalarchives.gov.uk/20170726163822/http:/www.bankofengland.co.uk/markets/Documents/money/documentation/ consult_bond_purchases.pdf, and the Market Notice archived at http://webarchive.nationalarchives.gov.uk/20170726163816/http:/www.bankofengland.co.uk/markets/Documents/money/documentation/ 061124.pdf. 29  10  All speeches are available online at www.bankofengland.co.uk/speeches  10  But it happened alongside it. And, since it seems likely to persist, it means our balance sheet is also likely to remain materially larger than pre-crisis. 30  Exactly how much larger that means is likely to depend on a range of factors: risk appetites, perceptions of the nature of future liquidity shocks, and developments in regulation. And some of these factors may well vary over time. Understanding the net effect of these factors on aggregate reserve demand is an important question for implementing monetary policy, as well as for our risk management of the balance sheet. Reflecting this, we launched a Discussion Paper in early August which examines the different factors in more detail, and have begun a series of discussions with market participants to help us understand them further, framed around these six questions. 31  We will continue gathering inputs until the end of October – and if  anybody here would like to contribute they would certainly be very welcome – and will provide further information as our thinking develops. Conclusion In conclusion, what do these developments mean overall?

Financial institutions’ capital moves in parallel with the price fluctuations of assets when these fluctuations result in capital gains or losses. The pursuit of a constant capital adequacy ratio (leverage) tends to reinforce this effect, by sustaining the demand for assets when their prices increase, and vice versa. The challenge for the authorities is to assess whether and to what extent the regulatory framework reinforces these dynamics. In other words, whether the financial regulations determined from a micro-economic viewpoint produce effects that impact the entire financial system. With these questions in mind, work is being undertaken to examine the impact of prudential standards. It is also on this basis that the accounting adjustments that I mentioned earlier have been made. More generally speaking, we will have to set up supervision systems that are more suited to economic developments. The need to develop a “macro-prudential” policy is now under debate. The general principle is straightforward, consisting in ensuring that supervision manages to limit risks for the stability not only of a particular institution, but also of the entire financial system. Its implementation, however, is complex. For the moment, we are only at a preliminary stage, contemplating which tools a macro-prudential policy could be based on, and how these tools could be used. As regards supervision, this crisis has shown the clear advantage in having the banking supervisor close to the central bank. This is a conclusion that is now shared by all central bankers, whatever the regulatory environment they are operating in.