the present crisis, part of the real - side adjustment is needed within the banking system. for that the bank of england does have a special role. through the new financial policy committee ( fpc ), we have been pressing the banking industry to adjust given the external threats, as sound banks are needed for sustainable recovery. • this represents the first intervention of so - called macro - prudential policy. can view the role of the fpc as being to ensure that the need for stability in the financial system is not overlooked. looking ahead, this will mean keeping the regulatory regime up - to - date as the financial system evolves and, when the time comes, ‘ taking away the punchbowl ’ before the next party gets as dangerously out of control as the last one did. • the case for operational independence here is just as strong as for monetary policy. taking away the punchbowl is something that requires a medium - term orientation. parliament can tie us to the mast and rely on us not to seek to wriggle free. • but, as with monetary policy, this makes it vital that parliament frames the objective and that we are sufficiently transparent to enable ex ante public accountability. • objective : the legislation governing the fpc is clear that resilience of the system as a whole is the primary goal but that we must not aim for the stability of the graveyard. resilience is not quantified, however. • transparency : while respecting the confidentiality of data on individual firms, fpc is required by parliament to be as transparent as possible – via the published record of our policy meetings and the twice - yearly financial stability report. • this is the background to the fpc calling on the bank to develop a regime for stress testing to be used for both micro and macro prudential supervision. ( part of a much bigger project that is needed for policymakers to gauge just how much stress our economy can take at any time without serious adverse consequences, and what to do about it. ) • one possibility is for fpc to use stress tests to define the degree of resilience the system needs. maybe that could become to financial stability what forecasting is to monetary policy. in the usa and elsewhere the results of such stress tests have been published. bis central bankers ’ speeches • that represents quite a change in regime for regulated firms. but neither the markets nor the public was comfortable with the degree of secrecy on these matters in the past. • it does

in the courts and appeal tribunals. • but there is also a wider question about how society as a whole will keep us accountable or, more simply, just see what is going on during the periods, sometimes years, in which banks do not fail and the financial waters are – or at least seem to be – calm. which brings me to our monetary and macroprudential roles, which indirectly touch every business, and household, in the country. part 2 : the central bank ’ s relationship with businesses in the wider economy • central bank charged with achieving and preserving stability – stability in the ( internal ) value of the currency and stability in the financial system. medium - term goals, requiring a medium - term perspective. • but what we do affects the path of the economy in the short run. on the one hand, that is why these tasks are entrusted to unelected officials in central banks : to solve the time - consistency problem. on the other hand, society is rightly hugely interested in • how unelected central bankers manage any short - term trade - offs • how to satisfy itself that we are not deviating from the medium - term goals we have been given. • in monetary sphere, the solution has been a quantified, well - defined medium - term objective for inflation combined with transparency. everyone is now used to this, but bis central bankers ’ speeches remember that transparency in monetary policy is a relatively new phenomenon. less than 20 years ago, the us fomc did not even announce its policy rate. • transparency works well for monetary policy because almost everything can be published. • and even there it is always possible to make improvements. latest inflation report package contains new charts, richer indicators. and following a new remit from hmg, mpc is being clearer about how we assess short - term trade - offs between growth and inflation in a way that is faithful to our medium - term inflation objective. • that doesn ’ t tackle biggest issue of all. central banks can, to a degree, smooth the necessary adjustment of economies and so create time for households, firms, governments to strengthen their balance sheets where necessary and adjust to shifts in the relative pattern of demand for goods and services. that is what is going on in the west now. but obviously central banks cannot force others to act. and our actions can make delay seductive. • given central banks ’ responsibility to explain, we can nudge but we must stay within our remit. • in