done is to apply judgement in overlaying the pillar 1 modelled capital requirements with pillar 2 capital buffers. since 2008, required pillar 1 capital in the major uk banks has increased from £151bn to £186bn. pillar 2 capital buffers set by the fsa, in all, have increased during the same period from just under £20bn to £150bn. put simply, in the regime up to 2008, there was no judgemental overlay of capital buffers, now there is such a buffer. this is a product of good judgemental supervision. bis central bankers ’ speeches what is the role of a leverage ratio? for me, it is not the frontline tool, but rather the very useful back - up check. why is it not in the frontline? because it would not on its own prevent the two main causes of the crisis. first, savvy investment bankers would take assets off balance sheet into places where a leverage ratio may not be the best measure. and second, on its own it does not stop the arbitrage whereby the riskiness of each unit of assets rises as a means to circumvent the discipline of the leverage ratio. but, it is a very useful tool, because on their own, risk - based measures can be arbitraged too by claiming that the measured risk has fallen when the real risk has not. the leverage ratio helps to put a floor into the system which stops that type of activity beyond a certain point. does this approach of using several tools leave the whole system of regulation too complicated? it certainly puts an emphasis on having good people in regulation, but i come back to the quote of the late 1980s, namely that good regulation has to understand how firms take risks. that does not, however, mean that a supervisor should allow a free - for - all and then ( usually vainly ) hope to understand it. we are doing a number of important things to counter complexity. first, the proposal on ringfencing from the independent commission has a strong element of separating more straightforward activities from the more complex. it should not be a matter of rules and good behaviour inside the ringfence and the wild west outside, because the outside could damage the financial system, but we will be able to use different approaches on each. second, the prudential regulation authority will be very focused in its judgements on the things that matter for our objectives. for me, this is where simplicity is key –

six or twelve month horizons. this could, of course, be entirely driven by the expectation that there would be no move in non - inflation report months : in the extreme, if the distribution of surprises in those months is degenerate ( i. e. so that no one expected a change in rate and this was what actually happened ) then the statement that surprises are bigger in inflation report months is no different from the statement that rates are only expected to change in these months. the closer the distribution comes to being degenerate, the more weight should be attached to that interpretation. but both the average surprise and its variance are significant. on closer inspection, this finding seems to relate to the decision in inflation report months – not the publication of the report itself a week later, or the minutes the week after that ( panel e shows that the market reaction to the policy decision is, on average, significantly bigger than the reaction to the report and the minutes ). this might imply that it is the rethink during the preparation of the inflation report that counts. but, once announced, the decision itself ( and the accompanying press notice, if rates have changed ) provides most of the information the market needs to understand the committee ’ s approach. this would be consistent with a fairly high degree of policy predictability. it is worth emphasising that the observed tendency for interest rate changes to coincide with the publication of an inflation report does not imply that interest rate changes are tied in any mechanical way to the central projection for inflation. the assessment of risks is always a material factor in determining policy, as well as an important aspect of the presentation of the forecast. for example in our latest inflation report we published a central projection which showed inflation rising gently but steadily above the 2 % target, assuming a nearly flat profile of interest rates out to three years. but the report noted that the balance of risks was to the downside and singled out some key near term risk areas, such as the household sector. this provided a nuanced background to the mpc ’ s february decision to hold rates unchanged. forecasts and public communication all inflation targeting central banks use their forecasts as a communication tool. they provide a coherent statement of policymakers ’ thinking about the economic outlook and the policy stance. together with the minutes of the policy meetings ( in our case published with individual votes after two weeks ), this helps to discharge the committee ’ s democratic duty to explain itself, as well as supporting its credibility and helping