. for example the bank lent £61. 5bn to rbs and hbos in 2008 - 9, and its market - wide special liquidity scheme peaked at £185bn in 2009. more recently, the balance sheet expansion has primarily reflected outright asset purchases and long - term lending schemes of unprecedented scale and duration, designed to deliver monetary stability when interest rates are close to zero. other major countries have seen increases of similar scale : chart 3 for example compares the expansion in the bank ’ s balance sheet with that of the us federal reserve. these expansions, though primarily focused on maintaining monetary rather than financial stability, are arguably further examples of the central bank as firefighter : injecting liquidity when other market - based channels are blocked. chart 4 shows how closely the increase in the size of the bank ’ s balance sheet mirrors the decrease in the scale of sterling lending to households and firms by uk banks in recent years : a strikingly similar picture to the stylised relationship in chart 1. for a discussion, see for instance ian plenderleith ’ s review of the bank of england ’ s provision of emergency liquidity assistance in 2008 – 09 ( http : / / www. bankofengland. co. uk / publications / documents / news / 2012 / cr1plenderleith. pdf ). see john, s, roberts, m and weeken, o, ‘ the bank of england ’ s special liquidity scheme ’ ( http : / / www. bankofengland. co. uk / publications / documents / quarterlybulletin / qb120105. pdf ). all speeches are available online at www. bankofengland. co. uk / speeches chart 4 : uk central and commercial bank chart 5 : permanent shift in the bank ’ s firefighter role? balance sheets risk tolerance private financial system percentage of annual nominal gdp financial institutions - lending to private non - financial sector ( a ) bank of england ( b ) open for business unconventional central banks mp normal conditions liquidity crisis degree of systemic stress sources : bank of england, ons ( a ) data as at february. sterling net lending to non - financial corporations and household sector. ( b ) data as at february. final data point shows the latest published balance sheet data, at 29 february 2016, plus the increase in the loan to the asset purchase facility since this time. the financial instruments underpinning these expansions tend not to be particularly complex when

is attractive because libor instruments are liquid. this is self - reinforcing – liquidity drives use of libor, which drives liquidity. in many cases the use of other benchmarks would be preferable for users. for example, most users of interest rate swaps are seeking to hedge the general level of interest rates, not bank credit risk. for this, near risk - free rates would be more appropriate. however, liquidity for long - dated sterling swaps is firmly rooted in contracts referencing six - month sterling libor, and individual participants cannot change this. all speeches are available online at www. bankofengland. co. uk / speeches in effect the benefits of deep and liquid markets – ease of price discovery, minimisation of basis risk, tight bid / offer spreads – have outweighed the fact that libor may not be a perfect match to users ’ underlying needs. whilst users of libor clearly benefit from this concentration of liquidity, the flipside is that it makes the adoption of alternatives to libor a very challenging task. these network effects are reinforced by market convention, accounting practices, and the frictional costs of changing firms ’ systems and risk models. and use of libor is perpetuated by the need to hedge and manage legacy positions. overall, there is substantial inertia in the use of libor. the case for change the financial system ’ s libor dependency matters for two reasons. first, as i have argued, in many applications users would be better served by a near risk - free rate : the bank credit component of libor is in these cases neither necessary nor appropriate. derivatives markets in particular could be more effective if there were liquidity in alternative reference rates. the prospect of improved market effectiveness might not, on its own, justify change. a second factor adds powerful impetus to the case for change. as the governor emphasised, the truth is that the term deposit markets which underpin libor fixings are no longer a liquid source of bank funding. even a reformed libor will need to rely on expert judgement to supplement transactional data. that is not a desirable state of affairs. the system - wide dependence on term libor fixings is an unnecessary vulnerability. a situation in which robust transactions - based benchmarks were more widely used would improve the resilience of the financial system. this is why the fsb recommended the development and implementation of rfrs. and that is why the bank – given