undermine confidence in banks more generally, the bank has the power to step in to provide support on a temporary basis. but in exercise of this power and in other aspects of financial stability, the bank works closely with the fsa and hmt ; and this common interest is governed by a memorandum of understanding. the three parties also meet monthly in a standing committee to discuss any issues of current concern ; and relations with the fsa are further cemented by the fact that i sit on the fsa board and howard davies is a member of court. one of the major driving forces in financial markets currently is technology. the face of banking is changing rapidly, with barriers to entry in particular markets and between markets falling as first telephone banking and now internet banking and e - commerce impact on more traditional banking services. technological innovation creates opportunities for integration of services and wider access to markets that previously did not exist. this can be seen clearly in the movement towards integration of stock exchanges and clearing houses. but more technology brings with it more operational risk. one example is the work involved with preparation for the millennium date change, in which the bank was heavily involved in ensuring that the uk financial system was ready ; this work certainly brought home to me the reliance on it and the huge variety of interconnections between different systems. while it networks and improvements in communications have allowed provision of financial services more cheaply and efficiently, they have also brought financial markets around the world closer together. this trend to globalisation has been beneficial to the uk. net investment income and profits from overseas make an increasingly large contribution to the uk balance of payments, going some way to offset the deficit on traded goods. however, with global markets, shocks in one part of the world are transmitted more quickly to other financial systems. the most recent example was the asian crisis, starting in the summer of 1997 in thailand ; and spreading to korea which had to seek outside support in december of that year. as turmoil spread through financial markets in the region, within a year equity markets had halved in value with a similar depreciation in exchange rates. conditions were further exacerbated in august 1998 by the default on russian government debt, fuelling further fears about emerging market debt. the flight to quality this prompted contributed in turn to the collapse of one of the large us hedge funds, long - term capital management. the events of 1997 and 1998 brought home the complex linkages between financial markets in a global economy. the international community has been active

the uk has enjoyed since the new monetary framework was put in place. but a fairer measure of the mpc ’ s success is perhaps the fall in inflation expectations since may 1997 ( which can be derived from prices of government bonds ) which has brought the cost of long - term borrowing down to historically low rates. i think that this provides some measure of the growing credibility of the monetary policy framework ; and the expectation that we have moved into an era where we can expect low and stable price conditions. core purpose : financial stability i will say more later about the current position of the uk economy, but first i would like to say something about the other functions of the bank which are perhaps less familiar than the mpc. the bank ’ s second core purpose is maintaining the stability of the financial system. the bank is no longer responsible for the supervision of individual firms but has a clear interest in ensuring the financial system functions smoothly. as the asian crisis in 1998 and the problems in japan show, dislocation of the financial system can impose significant economic costs and it is the bank ’ s role, looking at the system as a whole, to identify potential threats and vulnerabilities. in some respects this interest is integral to the bank as a central bank. for example, secure and efficient payment and settlement systems are an essential condition for economic growth, providing the means for money to flow between individuals, businesses and government. like other essential services - electricity, water - it is easy to take payment systems for granted. but the amounts involved are huge : 30mn transactions are processed every day in the uk clearing system, the value of which totals over £800bn every week. these payments ultimately result in transfers between settlement banks across accounts which they maintain at the bank of england. a failure in the payment system could have an immediate impact on the economy and the bank has worked with clearing banks to reduce the risk to the financial system, first by the introduction of real - time gross settlement and now by moving towards delivery versus payment in securities markets. less esoteric, perhaps, is our interest in the financial stability of individual firms and the structure of the financial system as a whole. while responsibility for individual firms lies with the fsa, the bank takes a close interest in the impact on the wider economy of the regulatory structure and the links between individual institutions and markets. the bank also has a direct role as lender of last resort. in the event that a bank has liquidity difficulties that might