important, if elementary. individual banks have also been able to increase their exposure to borrowers with which they do not have a lending relationship. ( indeed, some commentators suggest that it may sometimes be more effective for second - tier and smaller banks to take corporate credit exposure via the derivatives market than via participation in the lower tiers of loan syndicates. ) if, overall, the result were a greater dispersion of risk around the banking system and fewer large exposures relative to capital, the system as a whole would probably be safer even if, net, no credit risk had left the banking industry in aggregate. according to various surveys, some credit risk has been shed to non - banks, including insurance companies, pension funds and hedge funds. that too should, on balance, promote the resilience of the system, not least because non - banks are not part of the core payment systems that underpin our financial markets – provided, of course, that banks prudently manage their counterparty exposures to non - bank sellers of credit protection. as others have argued, this is a change of degree rather than kind : with the growth of corporate bond markets, and especially securitisation, non - banks have been my thanks to mike cross, colin miles and david rule for long - running debates on the issues discussed here. for comments, to peter andrews, andrew bailey, alex bowen, alastair clark, paul fisher, damien lynch, peter westaway and simon wells. and to sandra bannister for secretarial support. for an early review, see rule, d, ( 2001 ) ‘ the credit derivatives market : its development and possible implications for financial stability ’, financial stability review, issue 10, june 2001, pages 117 - 140 and rule, d, ( 2001 ), ‘ risk transfer between banks, insurance companies and capital markets : an overview ’, financial stability review, issue 11, december 2001, pages 137 - 159. running credit portfolios for years. by separating the provision of liquidity from exposure to credit risk, credit derivatives, and the related developments in structured finance, give non - banks new ways of accessing credit risk. as well as more dispersed risk buttressing systemic stability, the innovation of credit derivatives has plausibly taken us a further step towards complete markets, in effect providing a richer market for credit insurance than previously existed. investors and others may, therefore, be able to get a little closer to the portfolios they really

assessing the margin of spare resources in the economy is unusually difficult at present. capacity utilisation within companies, as measured by surveys, has risen. although unemployment has risen further, it is difficult to know how much of the rise in unemployment actually represents increased slack in the labour market. over the past year or so, the labour force has grown rapidly, following strong migration from eastern europe and elsewhere, and a rise in participation rates. there is, of course, great uncertainty about the scale of migration which has clouded estimates of the supply capacity of the economy. moreover, it is difficult to know how far migration affects demand for goods and services as well as supply. so the overall impact of migration on inflation in the medium term is unclear. against a background of firm growth and a limited margin of spare capacity, and with inflation above the target, the mpc judged last week that an increase of 0. 25 percentage points in bank rate was necessary to keep cpi inflation on track to meet the target in the medium term. so that is where we are now. where will interest rates go next? i do not know. and the reason i do not know is that we do not take our decisions in advance, but wait to see how the economy unfolds and then take our decisions one month at a time. the black country is where it all began. but now we must look to the future. the black country has entered a new era. and you are making it happen. i have explained how the mpc sees the prospects for the economy. if we can retain the degree of stability that we have seen now for more than a decade, then you will have the opportunity to start and expand businesses that will compete for black country business awards in the years to come. the winners tonight are shining examples, and i know you are all looking forward to finding out who they are. it has been a pleasure to come back to where it all began for me. and, whether or not you are one of the lucky few to win an award tonight, i wish your business every success.