headroom above the zero lower bound is justified in risk management terms – that the cost of a tighter policy setting than required is justified by benefits of avoiding the risk of having to use exceptional policy tools at the lower bound. i have however seen little evidence in the uk that monetary has a consistently asymmetric impact in normal times. as to the risk management argument, i do think the experience of the last 10 years shows that there are policy tools which, while not the primary instrument, remain available close to or at the zero bound. it was partly for this reason that the mpc ’ s recent statement on the unwinding of qe made clear that qe remained a weapon in the committee ’ s armoury. such evidence that exists for other economies suggest the opposite is true – that monetary policy has greater impact when it is raised than when it is lowered. tenreyro and thwaites as it stated in the june 2018 mpc minutes : in the event that potential movements in bank rate are judged insufficient to achieve the inflation target, the reduction in the stock of assets could be amended or reversed. all speeches are available online at www. bankofengland. co. uk / speeches a sharper tightening of policy has also been suggested to avoid financial stability risks. low policy rates, it is argued, generate leverage in the economy and can lead to asset price bubbles. these concerns have particular relevance for me given my responsibility as the current deputy governor for financial stability. on the face of it, this ought to bias me more to err on the side of a faster and sharper approach to policy. the evidence certainly seems to suggest that previous occupants of my post may have had such concerns about the impact of monetary policy on financial markets. since the post was established in 1998, previous deputy governors for financial stability have never voted against a rate increase, and have frequently been in the minority in calling for one. the difference, however, is that it was only in 2013, six months prior to my arrival, with the formal establishment of the financial policy committee that the bank was given specific macro - prudential tools to manage risks to financial stability. and since the establishment of the fpc, we have used those tools not just to increase the resilience of the financial system but also to restrain the build up of leverage in the economy more generally. i am very clear that monetary policy can and should serve as the last line of defence against risks to financial stability, even though

andrew bailey : prudential regulation – challenges for the future speech by mr andrew bailey, executive director of the bank of england, at the university of edinburgh business school, edinburgh, 4 october 2012. * * * it is a great pleasure to be in edinburgh again and to have the opportunity to set out progress on the reform of financial regulation as we approach the formal introduction of the new arrangements. scotland is home to a very important financial services industry for the uk and europe and although it may at times seem like the changes taking place in regulation appear through london and whitehall bubbles, they are clearly as relevant to you as they are to your counterparts in the city of london and canary wharf. all of us witnessed the costs associated with the failures of banks. we have learnt the lessons of that experience and that is why the reforms we are making to the way we regulate will affect us all and will create a system that is safer and stronger for every part of the uk. one thing i should emphasise is that this is a reform of the whole of financial regulation. i say that because it is easy to conclude from observation of the issues we face as regulators, and the public debate, that we are just dealing with reforming the regulation of banks. that is not the case, and what we are doing is not about dragging the rest of the financial services industry into reform to solve a problem that is in essence only about the banks. we have to design a system that works effectively for all sectors of the industry. on that theme, i would like to start by reflecting for a few moments on the lessons of history. my main theme is that i think integrated regulation – by which i mean regulation which combines prudential and conduct of business in one regulatory body with single teams of supervisors covering both – has not worked as effectively as it would need to do, for reasons that are deep - seated in the structure. i think there are a number of closely related reasons for this. first, on a rather practical point, i think it is hard for a single organisation to balance, particularly during a period of crisis, a wide range of very demanding issues which are individually rightly of great concern to the public and can come from anywhere in a landscape of around 25, 000 authorised firms. second, i think the evidence suggests that, over the last 15 years, there have been periods when either conduct or prudential supervision has been more in the ascendancy to the detriment of the other. in