1  For more details, see the Government’s consultation document “A new approach to financial regulation: building a stronger system”, available at http://www.hm-treasury.gov.uk/d/consult_newfinancial_regulation170211.pdf. The interim FPC’s terms of reference can be found at http://www.bankofengland.co.uk/financialstability/fpc/termsofreference.pdf. 2  Both documents are available at http://www.bankofengland.co.uk/financialstability/fpc/meetings/index.htm  3  Including, for example, the major commercial and investment banks, major wholesale dealers, second-tier banks, brokers, platform providers, corporate treasurers, asset managers, pension funds, insurance companies, hedge funds, private equity funds and many more risk managers, speculators, hedgers and end investors. 4  We meet contacts in all the major financial sectors, including London, New York, Boston and the Far East. BIS central bankers’ speeches  1  Today, I want to use the insights gained from our market intelligence work, together with market data, to provide an overall assessment of the state of financial markets, including the extent to which they have recovered since the depths of the financial crisis, the impact of a renewed reach for yield on financial innovation, and the impact of the regulatory agenda on market functioning. The evolution of financial markets during the crisis To set the scene, it is instructive to look at the general pattern in markets over the past few years. Chart 1 uses a “heat-map” to summarise data on issuance and spreads in primary and secondary markets for selected bonds and asset-backed securities (ABS), compared to their historical averages. The widespread panic and financial market seizure of 2008 is clearly visible in the concentration of red and grey segments.

Eggertsson, Gauti B., and Michael Woodford (2003). “The Zero Bound on Interest Rates and Optimal Monetary Policy”, Brookings Papers on Economic Activity, 1, 139–211. 10  BIS central bankers’ speeches  Gagnon, Joseph, Matthew Raskin, Julie Remache, and Brian Sack (2010). “Large-scale Asset Purchases by the Federal Reserve: Did They Work?” Federal Reserve Bank of New York, Staff Report No.441. Greenspan, Alan (2002) “Opening Remarks” in Rethinking Stabilization Policy, 1–10. Federal Reserve Bank of Kansas: Kansas City. Joyce, Michael, Ana Lasaosa, Ibrahim Stevens and Matthew Tong (2010). “The Financial Market Impact of Quantitative Easing,” Bank of England Working Paper No.393. Posen, Adam S. (2010). “Do We Know What We Need to Know in order to Lean against the Wind?”, speech to the Cato Institute, http://www.bankofengland.co.uk/publications/speeches/2010/speech462.pdf. Qian, Rong, Carmen M. Reinhart and Kenneth S. Rogoff (2010). “On Graduation From Default, Inflation And Banking Crisis: Elusive Or Illusion?”, National Bureau of Economic Research Working Paper 16168. Rajan, Raghuram G. (2005). “Has Financial Development Made the World Riskier?”, in The Greenspan Era: Lessons for the Future, 313–370. Federal Reserve Bank of Kansas City: Kansas City. Reifschneider, David L., and John C. Williams (2000). “Three Lessons for Monetary Policy in a Low Inflation Era”, Journal of Money, Credit and Banking, 32(4), 936–966. Reinhart, Carmen M. and Vince Reinhart (2011). “Pride Goes before a Fall: Federal Reserve Policy and Asset Markets”, National Bureau of Economic Research Working Paper 16815. Reinhart, Carmen M. and Kenneth S. Rogoff (2011). Taylor, John B. (2009).