Fortunately, the financial guillotine is not preordained, for Benoît did not spend his days in power as did Louis XV. Where the king grew idle, Benoît remained frenetic (189 public speeches during his eight years). Where the king was conservative, Benoît was radical. Where the king became nostalgic, Benoît always looked forward. If central banks are to rise to their challenges and serve our citizens, we will need to build on Benoît’s legacy. I. Improving market functioning Let me start with market functioning. Before the crisis, financial alchemy appeared to have sliced, diced and distributed risk to those who wanted it most. The revolutions in securitised and derivative finance were cheered on by policymakers who saw more markets as the solution to any market failures and who believed the lie that markets always clear. But of course markets always clear only in textbooks. In reality, people are irrational, economies are imperfect, and nature itself is unknowable. The pre-crisis system had merely spread risk, contingently and opaquely, in ways that often increased it. 2  All speeches are available online at www.bankofengland.co.uk/news/speeches  2  Once the crisis began, risk quickly concentrated on the balance sheets of intermediaries that were themselves capital constrained. And with the fates of borrowers and lenders tied together via hyper-globalised banks and markets, problems at the core spread violently to the periphery. The post-crisis response included major reforms to simplify markets and make them more robust.

In parallel, a “run on repo”, triggered by increased haircuts on collateral to guard against counterparty risk, pushed the shadow banking sectors in advanced economies to collapse. In the euro area, the sovereign debt crisis compounded these problems, causing some markets to splinter along national lines. Global reforms address the fault lines that caused this fiasco. New global standards for liquidity regulation are now in place including the Liquidity Coverage Ratio and Net Stable Funding Ratio. Bank capital standards now take into account exposures to shadow banks, including step-in risk, and through-the-cycle margining prevents Minsky cycles in secured lending. 1 2  See https://www.fsb.org/wp-content/uploads/R191118-1-1.pdf. See https://www.esma.europa.eu/sites/default/files/library/esma50_157_2025_asr_derivatives.pdf. 3  All speeches are available online at www.bankofengland.co.uk/news/speeches  3  These reforms are transforming banks’ approach to liquidity management and building the resilience of the system as a whole. For example, liquid assets – relative to liabilities that can readily run – are tenfold higher than before the crisis. However, the recent volatility in US dollar repo markets suggest there are still frictions that need to be addressed. Contrary to expectations, banks did not step into the market to lend cash, viewing the profit opportunity to be insufficient to offset the impact on perceived regulatory liquidity requirements. The Federal Reserve’s open market operations have since calmed the market, but term repo rates remain elevated, as dealers are pricing in a higher likelihood of similar spikes in future.