times over the past decade or so, it had been argued 5 that the macroeconomy as a whole should be more resilient to shocks to a financial system with “ twin engines ” – combining capital markets with banking system intermediation of savings and credit. the argument is that when the capital markets are impaired, banking can take more of the burden, and vice versa. i have a good deal of sympathy for this view – but not for all circumstances. it rather overstates the independence of capital markets and banking, as recent developments graphically demonstrate. first, whether through financing the purchase of credit assets by leveraged funds or warehousing portfolios prior to sale or providing “ liquidity lines ” to conduits and other investment vehicles, the banking system puts its capital and liquidity behind the distribution of credit risk to the wider asset - manager universe. as the official sector stressed over recent years, it is important to be clear about the circumstances in which risk can flow back to the banking system. 6 second, the “ twin engines ” view draws too absolute a line between banks and non - bank financial intermediaries. alongside other asset managers, banks have been material investors in securitised credit. in some respects, it may be more useful to distinguish see churm r., and l. webber ( 2007 ), “ decomposing corporate bond spreads ”, bank of england quarterly bulletin, q4 2007 ( forthcoming ). alan greenspan made this point a few times. for example see tucker p m w ( 2007 ), “ a perspective on recent monetary and financial system developments ”, speech at merrill lynch conference on hedge funds, bank of england quarterly bulletin, q3 2007, pp 310 - 16. between intermediaries on the basis of whether they undertake some combination of maturity transformation, leveraging their balance sheets, and mark - to - market valuations. banks are not alone in having these characteristics, and so there can be common shocks to bank and non - bank investors. in a recent series of papers, 7 hyun shin has argued that balance sheet management of this kind amplifies the credit cycle. that sounds like the “ financial accelerator ” model, except that shin ’ s position is that the outcomes can exceed those warranted by fundamentals. his argument is that in the upswing of a business cycle, the rise in asset values increases the accounting net worth of banks and other intermediaries, enabling them to leverage up their balance

averages - 25 % - 30 % source : office for national statistics and bank calculations chart 6 : real government investment 4 - quarter growth 2010 - 2016 2017 - 2019 2000 - 2007 4 - quarter growth period averages 60 % 50 % 40 % 30 % 20 % 10 % 0 % - 10 % - 20 % - 30 % - 40 % - 50 % - 60 % source : office for national statistics and bank calculations all speeches are available online at www. bankofengland. co. uk / news / speeches and @ boe _ pressoffice chart 7 : capital services ( d ) 4 - quarter growth 5 % 4 % 2017 - 2019 2 % 2010 - 2016 2000 - 2007 3 % 1 % 0 % - 1 % - 2 % - 3 % 4 - quarter growth - 4 % period averages - 5 % ( d ) volume index of capital services for the market sector source : office for national statistics and bank calculations all speeches are available online at www. bankofengland. co. uk / news / speeches and @ boe _ pressoffice references barrero, j m, bloom, n and davis, s j ( 2020 ), “ why working from home will stick ”, becker friedman institute, working paper, 2020 - 174 bloom, n, bunn, p, mizen, p, smietanka, p and thwaites g ( 2020 ), “ the impact of covid - 19 on productivity ”, bank of england staff working paper no. 900 broadbent, b ( 2012 ), “ productivity and the allocation of resources ” chartered institute of personnel and development ( 2020 ), “ home working set to more than double compared to pre - pandemic levels once crisis is over ” cominetti, n, henehan, k, slaughter, h and thwaites, g ( 2021 ), “ long covid in the labour market : the impact on the labour market of covid - 19 a year into the crisis, and how to secure a strong recovery ”, resolution foundation, february 2021 decision maker panel ( 2021 ), panel data – february 2021 felstead, a and reuschke, r ( 2020 ), “ homeworking in the uk : before and during the 2020 lockdown ”, wiserd report, cardiff : wales institute of social and economic research haldane, a ( 2020 ), “ is home working good for you? ” haldane, a ( 2021 ), “ inflation :