2010 ) ). many conventional crisis explanations have focussed on the combined effects of venal bankers, byzantine risk models and somnambulating regulators. rajan suggested these missed the deeper cause – rising us inequality. facing this fault - line, us policymakers had chosen a policy of cheap and plentiful credit, expanded home - ownership and rising asset prices – a “ let them eat credit ” policy. bank balance sheets grew to distribute this rapidly expanding credit cake, with banks taking their own healthy slice en route. interestingly, this would not be the first time rising inequality has preceded crisis. the selfsame pattern preceded the financial crash of 1929 and the resulting great depression ( kumhoff and ranciere ( 2010 ) ). between 1920 and 1928, the income share of the top 5 % rose from little more than a quarter to more than a third. household debt relative to gdp doubled. inequalities widened and balance sheets fattened. and the upshot was the same : a huge economic contraction when the credit bubble popped. if this is a fair reading of history, then inequality may have a direct bearing on the fragility of the financial system. and while of historical interest when describing the past, its greater significance may be in highlighting risks for the future. as in the 1920s and the 2000s, rising inequality could build pressure for a credit balm to sooth the symptoms. yet temporary pain relief, through a credit boom, would risk sowing the seeds of tomorrow ’ s crisis. the good news is that central banks may, in future, be better placed to head - off these pressures by taking pre - emptive regulatory policy action. this is the essence of so - called macro - prudential policy. in the uk, it is the responsibility of the bank of england ’ s financial policy committee ( fpc ). the fpc aims to curb excess credit at source. a large and growing number of other countries are putting macro - prudential frameworks in place, and taking macro - prudential actions, to serve similar ends ( haldane ( 2014 ) ). there is a second way in which inequality could affect central bank policy objectives. based on a detailed cross - country study, imf research has found that lower income inequality delivers faster and more durable growth ( ostry et al ( 2014 ) ). moreover redistributive policies, provided they are not excessive, have benign direct growth effects – and positive

lines would have on prices, mortgage indebtedness distribution of housing wealth. even if prices rise in newly popular locations and the volume of mortgage transactions increased, there could be offsetting effects. first - time buyers of properties outside high cost metropolitan areas who would otherwise have bought in those areas would take on less debt than they would otherwise have done. and existing owner - occupiers who moved from such areas to other areas in the uk might in fact reduce their debt in doing so. supply may also be more able to respond to demand outside city centres. policy the fpc introduced its housing measures in 2014 following the evidence from the post - financial crisis recession that aggregate household indebtedness and the prevalence of highly indebted cohorts had amplified the recession and its impact on the financial system. the tools therefore aim to enhance the resilience of the financial system. the measures aim to act as general structural ‘ guardrails ’ rather than as a countercyclical tool, though the fpc reviews their calibration periodically. such a review is in train and be completed by the end of this year. as i have set out, since the introduction of the tools the housing market, outside london, has been relatively quiet by uk standards. but, as i have also explained, there are likely to be many factors behind this in addition to the fpc ’ s housing measures. the bank has published extensive analysis on the impact of the tools and a forthcoming “ bank overground ” post will examine the extent to which the measures have acted as a constraint on renters entering the housing market. this analysis finds that minimum affordability requirements and lenders ’ internal limits on loan - to - values are likely to have been the dominant constraint for most renters. it estimates that only 2 % of renters would have all speeches are available online at www. bankofengland. co. uk / news / speeches and @ boe _ pressoffice been able to afford the median - priced first - time home in their region had they not been constrained by the affordability test. it is not clear how, were it to continue, the recent awakening of the uk housing market from its 10 years of snooze would affect aggregate indebtedness and the impact of the fpc ’ s measures. there are reasons to believe that a more active market, driven by a structural shift in housing preferences as a result of behavioural change and new working patterns could