which is then managed and gradually wound down. the assets have to be transferred at some price, and the process of striking that price has to protect the interests of taxpayers, who should not over - pay for the bad assets and thereby give a windfall to shareholders. at the same time, there has to be pressure on the institutions concerned actually to get on with the clean up, as opposed to just waiting for something to turn up. the plan being implemented in the united states is designed to induce private capital to take part in the asset management vehicles, which helps to sort out the pricing question. another approach is to leave the assets on the banks ’ balance sheets, but have the government insure them, for a price, to limit further downside. this is the essence of the uk approach. yet another approach is to nationalise the relevant institutions, which obviates any pricing issues for the assets per se and automatically provides enough capital, but introduces new questions in dealing with shareholders. this approach is the traditional one, though it has mostly been used in smaller countries or, where used in major countries, for smaller institutions. the economics of all these approaches is essentially the same : recognising losses that have occurred, reducing the riskiness of bank balance sheets and finding new capital to restart the credit process. which technique to choose is a matter of judgment. the politics may be harder than the economics. ordinary people resent, not surprisingly, taxpayer funds being used to fix problems that arose, in part at least, because of seriously misaligned incentives that rewarded financiers for taking too much risk. but it has to be done, otherwise economies will suffer for longer. the political leaderships of the united states, the united kingdom and some other countries have the unenviable task of persuading their citizens to accept the need for these initiatives. a second near - term condition for recovery is macroeconomic support for aggregate demand, in an environment in which private spending has weakened sharply, owing to loss of confidence and strained credit markets. that is coming into place as a result of easier monetary policy, and easier fiscal policy also in many countries. internationally, the role of fiscal policy is more prominent on this occasion than has been the case for many years, since the impaired credit system makes monetary policy less effective than it would normally be in many countries. the reason official interest rates are approaching zero in a growing list of countries is not because central banks think it is a good

, depending on the relative importance of banks and financial markets in their local economies, their central bank mandates, and their risk preferences. but given the multiple institutional, technological and crossborder linkages that characterise our core markets, we have a strong common interest in setting out the choices. a recent brookings paper by nellie liang and pat parkinson touches on a number of these issues as they relate to the us treasury market. 24 conclusion it is sometimes said that hard cases make bad law. we should certainly be wary of drawing overly direct conclusions from the covid pandemic, given how truly unique the circumstances have been. but many of the vulnerabilities in financial markets exposed last spring have been staring us in the face for some time – and will only grow in importance in the years ahead, as households and firms come to rely ever more closely on such markets to care for their savings, and fund investment. so we must seize this opportunity for reform. the primary focus lies in strengthening the resilience of those active in financial markets, through the vital work underway at the financial stability board. prevention is better than cure. but central bank tools have a part to play too. i have discussed here today some of the design features that a new generation of such tools might have. i look forward to the debate to come. thank you. https : / / www. brookings. edu / research / enhancing - liquidity - of - the - u - s - treasury - market - under - stress / all speeches are available online at www. bankofengland. co. uk / news / speeches and @ boe _ pressoffice