true market is and their responsibility to act in a way that is consistent with maintaining true markets. in terms of a perception of a lack of client focus, i took away two gaps that were raised. the first is a financing gap, which i felt came out during the first panel, and which some economic historians in the room compared to the ‘ macmillan gap ’ – the distance between finance and industry being too great. people talk today about an excess of savings not finding a home. in this country, it is felt most in terms of sme and mid - cap finance. many were struck by the potential ability of financial technology – fintech – to help bridge this financing gap, but i would emphasise that there was also bit of a caution, as i believe reverend giles fraser noted in the last panel. we should not get too far ahead of ourselves, but look to further evidence that it can bridge the gap. i think the chancellor is absolutely right that fintech has potential both in terms of expertise in finance and capability in technology. if these can be married effectively, we have an opportunity. there were a few specific examples that were mentioned that i would just like to reinforce. first, and as alex brummer very rightly emphasised, the opportunities that come from big data and a greater open architecture that is already there. as our chief operating officer charlotte hogg would note, the bank of england is one of the biggest repositories of big data. there is always a question about to what extent that can be leveraged more broadly into the system, and though it is still early days, the bank may want to consider taking this on as a challenge. jon cunliffe raised a separate and important issue with receivables finance, where fintech could make a real difference. following the crisis, payment terms for companies increased to 120 days and have not come back. we know there are effective fintech solutions to this which leverage off the credit of the payer. in such circumstances, and more broadly where fintech moves further into more traditional banking areas such as peer to peer and other lending, the bank recognises that we need to think about and take forward a proportionate, activity - based regulatory response. let me turn to the second gap in relation to a lack of client focus : an engagement gap, if i can put it that way. this manifests itself in a number of ways, as noted during the many insightful interventions during our panel

the overnight interest rate is the nominal overnight uncollateralised call rate. source : thomson financial datastream. ( iii ) aversion to long - term contracts and excessive resources devoted to hedging inflation risks. as we have seen, high inflation goes hand in hand with greater uncertainty about future inflation. inflation is, therefore, associated with a positive risk premium to compensate investors for that uncertainty. the longer the time horizon, the greater the risk premium is likely to be. that discourages long - term contracts and interest rates in such contracts will often depend upon future spot interest rates. floating - rate mortgages are a good example. with a floating - rate mortgage the borrower is exposed to the risk of sharp fluctuations in the proportion of income that is devoted to debt service, as many households in britain still remember from the late 1980s when interest rates doubled to 15 %. fixed - rate mortgages eliminate that risk, but at the cost of introducing a new risk : the real value of the outstanding debt may change relative to the value of the house. john campbell and joao cocco ( 2002 ) have suggested that a superior contract would be a fixed - rate mortgage where the principal was index - linked. that would reduce both income and capital risk. for whatever reason the market has not generated many private - sector index - linked contracts, despite the encouragement of high inflation in the past. perhaps that is because the risks are generated not by some exogenous process, but by policy decisions. in any event, price stability is a good alternative to indexation. the move from a regime of high inflation to one of price stability can have consequences which again are best illustrated by the housing market. a credible move to inflation targeting can bring down inflation expectations relatively quickly, even if with a lag. chart 7 shows that inflation expectations, as measured by surveys, fell steadily following the introduction of inflation targeting, and are now anchored on the 2. 5 % target. but a move to low inflation has other consequences that may be less easily understood. price stability means lower nominal interest rates, and lower mortgage interest payments. it may also mean lower real interest rates if the inflation risk premium falls. but the fall in nominal rates is likely to be much larger than the fall in real rates. the lower mortgage payment largely reflects a rise in the effective duration of the loan because inflation no longer erodes the real value of the debt as quickly as before. in a low inflation world, nominal incomes rise more