While the adjustment to interest rates can be larger – up to 75 basis points - if alternative assumptions are made about cost of crises and the sensitivity of crisis risk to monetary policy, the calibrations required to deliver these outcomes are extreme. Svensson (2017) argues that the costs of using interest rates to lean against financial crisis risk are likely to be greater still if one takes into account that doing so will make the economy weaker at the point a crisis strikes and hence might actually worsen its severity. 24  We would like to thank Karam Shergill and Rhiannon Sowerbutts for collecting these data. 34  All speeches are available online at www.bankofengland.co.uk/speeches  34  Aikman et al (2016) analyse empirically the joint non-linear dynamics of credit, financial conditions and monetary policy in the United States. They find that the transmission mechanism of monetary policy to long-term yields is blunted in high credit states. This suggests that attempts to lean against the wind with monetary policy when credit is already elevated may be futile. Filardo and Rungcharoenkitkul (2016), by contrast, find benefits from using monetary policy to ‘lean’ when the evolution of financial imbalances is extremely persistent. But the general consensus is against deploying monetary policy, at least in an activist way, for financial stability purposes given its limited efficacy and potential real-economy costs. One recent paper that addresses issues of CCyB strategy is Aikman, Giese, Kapadia and McLeay (forthcoming).

23  Defined as the rate of change of aggregate bank credit (domestic bank loans to the nonfinancial sector) relative to GDP, relative to its mean, from previous trough to peak. 33  All speeches are available online at www.bankofengland.co.uk/speeches  33  Other potential macroprudential instruments included those aimed at influencing lending standards - for example, through setting loan to value limits (LTV), loan to income limits (LTI) or margining requirements on collateralised borrowing in financial markets. A third set of potential instruments focused on making market infrastructures more resilient and improving financial market practices – for example, by mandating central clearing, through trading venue design and through enhanced disclosure requirements. So how has thinking on macroprudential instruments moved forward in the period since? Chart 22 documents the use of different types of macroprudential tool over the past decade in a panel of advanced economies.24 Perhaps contrary to expectations, the majority of interventions have fallen into the “lending standards” category, a group that includes LTI and LTV requirements. By numbers, such actions account for around two-thirds of overall macroprudential actions over the period since 2010. At the other end of the spectrum is the CCyB. That has only been used by 6 countries to date. This is surprising given that it is the only tool that has a well-defined operating framework internationally and which includes jurisdictional reciprocity. A potential explanation is that the Basel guidelines suggest the buffer should be activated when excess credit growth threatens an increase in system-wide risk.