a new framework for thinking about these issues. the central idea is a simple one : how much operational disruption to key business services should firms, the pra, the fca, and the wider bank of england be prepared to tolerate? we call this ‘ impact tolerance ’. the focus of our future policy will be on the continuity of the business services that a firm ’ s customers and the wider economy rely upon. preventative mitigation is obviously very important, but having impact tolerance means acknowledging that disruptive events will happen, and that firms need to be able to recover within their set tolerance. i ’ m talking about planning for scenarios that are severe but plausible – we expect firms to be resilient against a wide range of scenarios, but not against armageddon. i think it likely that the ordering of these impact tolerances between firms and the pra will often be the opposite way round from capital. on capital, inserting the public interest means that as a general matter we will require firms to hold more capital than they would if left to their own devices – hence, a battleground. for operational resilience, a firm is likely to experience significant private costs – for instance, impact on their profits or damage to their brand – before their safety and soundness is at risk. the exception to this may be a subset of operations whose failure might pose a systemic risk to financial stability. but in most cases, i think interests are likely to be aligned – we all just need to get better at managing this set of risks, as some recent events have illustrated all too painfully. in this context, i will expand briefly on the pra ’ s particular focus in this important area. our general statutory objective is safety and soundness, with policyholder protection on the insurance side and a secondary objective to facilitate competition. but nested within these objectives is an instruction that our objectives are to be advanced by avoiding adverse effects on the stability of the uk financial system. in other words, although our work is primarily microprudential we have an important role to play in ensuring financial stability. what does this imply for how the pra should take an interest in operational resilience? it implies that we are interested in operational resilience for its own sake, not just because its absence can have a financial consequence for firms. but we are interested only to the extent that it could have a negative impact on safety and soundness and / or the stability of the uk financial system.

us foresaw and this has been accompanied by higher inflation. concluding remarks now for a brief summary of what i have said. economic policy as a euro participant is not all that different from economic policy today. when discussing stabilisation policy it should borne in mind that the best way for us to achieve a favourable development – inside or outside the euro area – is to create conditions for a smooth adjustment to various markets, primarily the labour market, and for a good productivity trend. in these respects there are measures we ought to take in any event. but euro participation can help us to move in the right direction. by adopting the euro we would relinquish our national monetary policy. that would make the formation of fiscal policy more crucial. there are risks here, as we know from our own experience in the 1970s and ’ 80s, when policy was neither consistent nor focused on the long term. as a result, cyclical fluctuations were accentuated and the government finances gradually weakened. that limited the room for action when sweden entered the 1990s. the main thing to do to prevent new crises for stabilisation policy is to develop and possibly reinforce the framework for budget policy that has applied in recent years. government debt can then be run down more quickly and reserves can be built up so that the automatic stabilisers can be left to do their work. an important issue in this context is the construction of the social security system. changes will be needed and there may well be reasons for increasing the element of funding. it may be asked whether some institutional changes are also needed to facilitate a discretionary fiscal policy. this is certainly not a minor question but it has taken up too much of the discussion about economic policy. the possibility of implementing a discretionary fiscal policy in a meaningful way is limited. the discussion should therefore concentrate on what can be done to manage situations when more serious shocks are likely to occur. the problem here has been a lack of knowledge, plus the difficulties in mobilising sufficient support for a restrictive policy when the economy is overheating. there are presumably some things that can be done to improve our knowledge, though it is mostly a matter of trimming an existing structure. but that must be done in the light of the limited competence for empirical economic analysis in sweden and the numerous challenges that lie ahead in other respects than stabilisation policy. perhaps a sharper analysis and discussion could also be a help with the political problems. in this context, an economic council along the lines