weaken and distress sets in. the movement out of liquid assets into the now overvalued illiquid assets reverses and, if precipitous, a crash or panic ensues2. kindleberger drew on adam smith's observation that " when the profits of trade happen to be greater than ordinary, overtrading becomes a general error3. and the rate of profit " is always highest in the countries that are going fastest to ruin4. more recently, harold james has reminded us that although the great depression on both sides of the atlantic is often associated with bank failures, there was a critical 1 / 5 bis - central bankers'speeches interaction with financial markets. the effect of this was to reduce the wealth and collateral available for corporations and individuals to borrow, which led to a reduced credit supply, forcing borrower liquidation of assets thereby pushing asset prices down further. this was the debt deflation of irving fisher and the credit channel of transmission of ben bernanke. moreover, as james notes, surviving sudden crises requires extraordinary public policy measures to be used – such as short - run actions to alleviate long - run problems, even if on their own they are not compatible with long - run stability5. enough theory and history. i hope though that you will understand why it matters. i am going to use the rest of my time to apply it to today's world. first of all, let me make an overall point. there is a tension in financial stability between the overall or macro - prudential approach and one that is more of a disaggregated list of stuff that could go wrong and cause a wider crisis. macro - prudential policy has to stay focused on risks that could threaten the system as a whole, taking into account correlations, concentrations, interconnectedness and opacity. this macro - pru approach is more ambitious and harder to pull off. it can come and go in terms of the attention it gets, the cycle of which tends to be related to the incidence of crises. a good ( or bad ) crisis tends to provide a more macro focus for a time, but then as memories fade the list approach can come back to prominence. i believe we have to push against such a listlike tendency keeping our focus on the system - wide perspective, and the correlated, concentrated, interconnected and opaque positions that matter for the stability of the system as a whole. this is the spirit of minsky and others

has reached a level from which it could be materially cut were more stimulus required ). such a decision will be taken in pursuit of our inflation target. but i can assure you that this will be done in an orderly and clearly communicated fashion to avoid undue disruption in financial markets, including through close coordination with the debt management office. 4. expanding and clarifying liquidity insurance how we use the balance sheet also needed to evolve to meet our financial stability objectives over the course of the financial crisis. in the decades prior to the crisis, the need for the bank to provide liquidity support was infrequent and usually on a small scale. 2 as such, in 2007 the bank had a relatively limited list of institutions that had access to its balance sheet through what is called the sterling monetary framework ( smf ), along with a conservative list of collateral acceptable in its published facilities. and there was little clarity about the circumstances under which the bank would extend liquidity support for financial stability purposes. despite this less - than - ideal starting position, the bank ultimately embraced the provision of liquidity to the system over the course of the crisis, with the expressed aim of reducing the costs of disruption to critical financial services. this came about via an alphabet soup of schemes, including dwf, ectr, eltr, fls, iltr, and sls. 3 common to all was a see plenderleith ( 2012 ) for details of episodes of lender of last resort since 1973. more information about these schemes is available on the bank ’ s website : http : / / www. bankofengland. co. uk. bis central bankers ’ speeches recognition that to achieve its aim, the bank needed to provide liquidity against a wider range of collateral, to a wider range of counterparties, for a longer term. two other innovations are noteworthy. • first, in some circumstances the bank lent in a currency other than sterling – a first for our liquidity insurance operations. 4 • second, the bank acted as a market maker of last resort in the sterling corporate funding markets – making small targeted purchases and sales of commercial paper and corporate bonds. 5 many of these changes were made in the heat of the crisis. and since the 2012 winters and plenderleith reviews 6 much effort has been exerted in hardwiring them into our operating framework to make it clear to market participants how we would act in future. as figure 2 shows, the membership of