’ s bank of england concurrent stress test, we are taking a substantial step to enhance the coverage of market risks. our new approach to stress testing trading activities will capture how fast banks could unwind or hedge their trading positions in the stress scenario. this means positions that are less liquid under stress conditions will receive larger shocks. and, we have developed a new approach to stressing counterparty credit risk, which focusses on capturing losses from exposures that would become large under the stress scenario and for counterparties that would be most vulnerable in the stress scenario. second, the bank of england, working with the fca and hm treasury has set up the fair and effective markets review to restore trust and confidence in the fixed income, currency and commodity ( ficc ) markets in the wake of the serious wave of misconduct seen since the height of the financial crisis. the review is taking a fundamental look at the root causes of these abuses, the steps that have already been taken by firms and regulators to put things right, and what more is needed to deliver less vulnerable market structures and raise standards of behaviour in future. the review will publish its recommendations in june 2015. out of this assessment, and based on consultations to date, will i believe come priorities on market structure “ standards ” and transparency, effective competition, professional culture within firms and effective, pre - emptive supervision which reduces the drama of ex - post enforcement. the third area of action concerns initiatives to improve the functioning of markets to support activity in real economies. resilient market - based financing will help to support sustainable economic growth. the aim behind the european commission initiative on capital markets union is to strengthen markets in the eu to support growth and stability, and sustainable bis central bankers ’ speeches progress on this front will be welcome. 7 likewise, sound securitisation is a goal of the wider financial reform programme. the bank of england and the ecb have published a consultation paper to identify simple, transparent and comparable securitisation techniques, the use of which should be encouraged. this work is now being taken forward in international policymaking bodies. the fourth area of activity involves so - called securities financing transactions ( sfts ) including securities lending and repurchase ( repo ) agreements. these can have the beneficial effects of supporting price discovery in financial markets and secondary market liquidity, and are important as part of market - making activities by financial firms, as well as their investment and risk management activities. but, as we witnessed in

euro weakness. we don't of course have a crystal ball. but even if we had, it is important to recognise that the link between relative interest rates and exchange rates is much more complicated - and indeed more unpredictable - than is often suggested. our own exchange rate against the euro today, for example, is actually somewhat stronger than it was before our reductions in interest rates this year ; and the dollar, too, is substantially stronger against the euro than it was before the much larger cuts in us interest rates. so, in setting interest rates, we can - and do - make allowance in our projections for what has happened, and, on a best guess, for what is likely to happen, to the exchange rate, and that may cause the exchange rate to soften or it may cause domestic demand growth to strengthen, thereby offsetting the exchange rate's dampening effect on the economy. but what we cannot do is to target the exchange rate, without putting the stability of the economy as a whole at risk. the exchange rate is just one example of the many uncertainties that confront us in our pursuit of the government's inflation target. we do not know, for example, with any great confidence what is happening in aggregate on the supply - side of the economy, nor therefore precisely what rate of growth we can expect to sustain. we can observe that there has been less price pressure in both goods and labour markets given the strength of demand in those markets than past relationships would have suggested and we can try to understand the reasons for this change. but while we do in fact make some allowance in our projections for the more benign relationships to continue, we do not actually know very much about the size of the improvement or whether or not it will persist. there are familiar uncertainties, too, about the prospective strength of domestic private sector demand growth, which remains quite robust for the time being, but which could be adversely affected by confidence effects from developments elsewhere, and which may in any event need to moderate to accommodate the planned acceleration of public spending. and substantial new uncertainties have emerged more recently, relating in particular to the extent and duration of the slowdown in the united states and to the associated weakness of equity prices, and their potential impact on our economy, as well as to the direct and indirect effects of our own outbreak of foot and mouth disease. the list could go on. but please don't think i'm complaining. we are paid to look ahead as best