to support the second objective of the fpc. now, in terms of how we justify this, given the hierarchy of objectives that i described earlier, i believe that it is important to look at the interaction of resilience and lending as i set out. i think it is reasonable to conclude, and the fpc supported this action, that a reduction in the risk arising from this new lending caused by an improvement in credit conditions should help to offset the risk from lower capital buffers. in other words, if such extra lending boosts economic growth, it will enhance resilience in the financial system. this means that while banks will, where needed, have to hold some capital above the basel iii transaction path for the reason that i bis central bankers ’ speeches set out earlier, the fsa is allowing those banks that increase lending to a lower pillar 2 capital buffer to recognise the benefits of such lending. i should add that the fsa has also altered its guidance to banks on the liquid asset buffers they need to maintain. this reflects the bank of england ’ s stance on the potential access of banks to liquidity from the bank, and a wider desire to reduce the incentives for banks to hold excessive liquid asset buffers for precautionary reasons. this action, too, has been endorsed by the fpc, and i hope it will support credit availability. in conclusion, i have tried this morning to set out how we are thinking about and then applying macro - prudential policy, going back to first principles. this is a new field, and as i said earlier, please bear in mind that in the early days of the low inflation monetary policy regime in many countries, it took time to refine the communication. but, beyond that, we also need to fill in what for me is the big gap at present, namely how we explain and calibrate the resilience objective in terms of capital. the fpc will focus on this at its next meeting. it is therefore too soon to assess the impact of these changes on the resilience of the financial system and on credit creation. we will monitor the results of these actions very carefully, and we will be prepared to amend our judgements in the light of experience. the key point for me is that we are applying judgement to our decisions on regulation and within a framework that quite explicitly defines and seeks to balance the objectives of resilience, the primary objective, and, subject to that primary objective, supporting

economic area and the growing integration of the financial market alone is concerned, the euro no doubt has the potential to become more important than all of the single currencies of the euro area put together. expectations were therefore very high among politicians, and also among a number of academics, even before the start of monetary union. those expectations have presumably even been reinforced by the advance confidence the euro had been given on the basis of the solid and stability - oriented institutional framework for monetary policy. it was assumed that • there would be significant portfolio shifts in the euro area, • that international investors would quickly add euro - denominated securities to their portfolios, and • that central banks all over the world would diversify their foreign reserves to a greater extent in favour of the euro. instead, a certain disillusionment has emerged since the beginning of this year. however, very little time has elapsed since the introduction of the euro. experience shows that the structure of international financial markets changes only very slowly. it is certainly too early to make a final assessment. we shall have to wait and see how things develop. at present, the dollar is strong, while the euro has tended to decline in value since the start of monetary union. however, i do not see any reason to dramatise this. for example, the current exchange rate of the d - mark against the us dollar is almost identical with its rate in the spring of last year. when reasons for the weakening of the euro are sought, particularly three factors are mentioned : firstly, the so far robust state of economic activity in the united states, and secondly - in contrast to this - the slowdown of economic growth in continental europe. the resultant trends in interest rates have not failed to have an impact on the relationship between the euro and the dollar. thirdly, the euro has recently weakened further due to the situation in kosovo, while the dollar established itself even more as a safe - haven. there is yet another hypothesis about the recent performance of the euro : many investors are currently avoiding the euro area, because it obviously seems less attractive to them. some analysts argue that this has something to do with the uncertainties about fiscal, economic and structural policy strategies particularly in the larger economies of the euro area. their main question therefore is : does the euro lack political confidence? iv it is certainly not easy to establish a new currency in the current international environment. in this context, i would like to give particular emphasis to the fact that