paul tucker : credit conditions for firms – stability and monetary policy speech by mr paul tucker, deputy governor for financial stability at the bank of england, to the association of corporate treasurers ’ annual conference, liverpool, 18 april 2012. * * * it is quite a few years since i last spoke to an act gathering and it is very good of you to ask me back. since then, many of you have been close to the front line of the financial crisis that overtook us nearly five years ago. bridging the financial economy to the real economy, you have had to navigate a demanding obstacle course while the real economy “ rebalances ”. that means that businesses – the productive part of the economy on which our prosperity depends – are having to adjust after years, preceding the crisis, when spending was loaded too much towards household and government consumption, the country ’ s income from net trade was too weak, and investment was too heavily weighted towards commercial real - estate construction. that rebalancing has some way to go. while many of the planned tax increases are already in place, government consumption will continue to be scaled back for the next few years. there is also a risk that households will spend less than expected in order to rebuild their balance sheets, holding higher liquid savings than previously as a precautionary buffer. on the supply side, as the world economy recovers, the balance of production will continue gradually to shift towards exporters and towards firms which, given sterling ’ s large depreciation since mid - 2007, can now compete somewhat more readily against importers. for sectors primarily serving domestic markets, the adjustment is more challenging. some face both higher costs for imported inputs to production and weaker demand – not just temporarily but persistently – for their final output. on the ugly side of this rebalancing, there has already been an increase in vacant properties on the high street, which is also facing structural change due to on - line shopping. some of those properties will no doubt be converted to other uses over time, but i know it will not be easy for the firms affected or for their employees. company insolvencies have ticked up, and will likely continue to do so for a while. credit supply and the corporate sector recovery will come, and the necessary adjustments will occur, over time. but it is made harder for you by the problems in the financial system. you have faced first tightening, then in late 2008 frozen, and now a prolonged period of

argument to its logical limit – to ensure we internalise all possible spillovers let ’ s just have one body determining every aspect of public policy – i think we ’ d all have misgivings with the outcome. apart from anything else the policymaking process would be far too complicated to hold any one bit of it to account and the all - powerful policymaker would naturally tend to focus on the more verifiable tasks. a bit like the man who loses his keys in the park but looks for them under the streetlamp “ because that ’ s where the light is ” the attention of policy would be directed to the most observable objectives. perhaps we collectively fell foul of this trap, in some ways, ahead of the crisis. the risk of a rare event is not an easy thing to judge and, having gone so long without a serious problem in the financial system, our attention was distracted by the more easily monitored task of stabilising the economic cycle. maybe people were too beguiled by the “ great stability ”, if only because data confirming it arrived with such regularity, to notice what was going on within the financial system. all speeches are available online at www. bankofengland. co. uk / speeches one obvious lesson has been that the stability of inflation is no guarantee of financial stability – hence the ( re - ) creation of macro - prudential policymaking. i think another lesson is that it ’ s better to grant these powers to a single, accountable body, “ ring - fenced ” from the other functions of the central bank. i don ’ t want to overstate the case and i ’ m certainly not suggesting any sort of “ chinese wall ” between the two functions. there are clear advantages in having them housed in the same institution. many economic issues are relevant for both and, in the bank of england, the mpc and fpc regularly receive joint briefings on such matters. even if the two hands are separate, it is important that the one should know what the other is doing, and in that respect it helps that some people sit on both committees. and if and when there were a serious co - ordination challenge – if, for example, one body became concerned about its ability to meet its primary objective, without enlisting the assistance of the other – then i think the current system in the uk would allow that to happen. equally, there are also clear advantages in a degree of separation. one – something i