for transferring risk efficiently around the system ” and that defaulted loans that would have knocked a hole in a bank ’ s balance sheet ten years ago were “ now hits that we have spread around the system, and represent tiny blips on the balance sheet of hundreds of financial institutions ”, see p99, tett, g., “ fool ’ s gold ”, ( 2009 ). all speeches are available online at www. bankofengland. co. uk / publications / pages / speeches / default. aspx the impossibility of completing markets was not the only practical problem with the pre - crisis approach. even if markets could be perfected, nature itself is unknowable. 12 that is genuine uncertainty, as opposed to risk, the distinction made by frank knight in the 1920s. 13 and it means that market outcomes reflect individual choices made under a pretence of knowledge. 14 the swings in sentiment that result – pessimism one moment, exuberance the next – do not reflect nature ’ s odds, but our own assessments of them, inevitably distorted by keynes ’ optimistic “ animal spirits ” and his cynical “ beauty contests ”. 15 these are dynamics that can afflict not just sophisticated investors, but mortgage lenders and homebuyers, especially during a “ new era ”. if house prices can only go up, it is possible to borrow large multiples and pay off future obligations with the capital gains that will follow. such “ rational ” behaviour fuelled the credit binge that ultimately led to the global crisis. in the end, belief that “ markets are always right ” meant that policymakers didn ’ t play their proper roles moderating those tendencies in pursuit of the collective good. lie iii : “ markets are moral ” the third lie, that markets are always moral, takes for granted the social capital that markets need to fulfil their promise. 16 the crisis showed that if left unattended, markets can be prone to excess and abuse. in financial markets, means and ends can be conflated too easily. value can become abstract and relative. and the pull of the crowd can overwhelm the integrity of the individual. consider the example of fixed income, currencies and commodities ( ficc ) markets, which have historically relied heavily on informal codes and understandings. 17 recall that the arrow - debreu world relies on people being able to calculate the odds of each and every possible scenario. then they can

- crisis were twice as likely to default as their predecessors, and that the leveraged loan market shows few signs of slowing. * * * * * * * * * * * * * * * * * * * * turning finally to the lie that “ this time is different ”. if the experience of the financial crisis teaches us anything, it ’ s humility. we cannot anticipate every risk or plan for every contingency. but we can, and must, plan for failure. that is how we can create an anti - fragile system that is robust to both the intensification of known risks and the crystallisation of rumsfeldian unknowns. an anti - fragile system requires resilient banks. a decade ago, major banks were woefully undercapitalised, with complex business models that relied on the goodwill of markets and, ultimately, taxpayers. large global banks can now stand on their own. see fsb policy recommendations to address structural vulnerabilities from asset management activities ( 2017 ). fpc record ( q3 2018 ). over the past year, leveraged lending has grown by around 15 % ( or 10 % of total advanced economy credit to corporates ) as compared with an estimated 13 % growth ( or 13 % of the total share of us mortgages ), for the sub - prime market to 2007. with maintenance covenants falling from close to 100 % in 2010 to around 20 % now. all speeches are available online at www. bankofengland. co. uk / publications / pages / speeches / default. aspx their common equity requirements and buffers are now ten times higher than the pre - crisis standard. and to protect the system from risks we think are low but prove not, banks are subject to a simple, minimum leverage ratio, which is robust to model risk. regulation has made banks less complex and more focused. business strategies that relied on high leverage, risky trading activities and wholesale funding are disappearing, as intended. trading assets have been cut in half, and interbank lending is down by one - third. 38 not least due to new global liquidity standards, banks have changed their funding models and now hold substantially more liquid assets relative to the liabilities that can readily run. in the uk, such contingent liquidity has increased tenfold since the crisis. an anti - fragile system requires ending too big to fail. but higher capital and liquidity requirements are necessary but not sufficient.