of retail space. almost 1, 000 high street chain stores closed in the first half of the year. lower asset values have left debt levels looking too high. households, businesses and, especially, banks are all deleveraging. nowhere is the overhang of debt more obvious than in the banking sector where deleveraging is holding back the flow of new lending. during the crisis central banks have provided liquidity to banks on a truly extraordinary scale, so much so that there were no takers for additional liquidity in our latest auction. it is still useful to keep that auction facility as an insurance policy. but banks are now overflowing with liquid assets. their problem remains insufficient capital. just as in 2008, there is a deep reluctance to admit the extent of the undercapitalisation of the banking system in many parts of the industrialised world. the bis central bankers ’ speeches verdict of the market is clear – without central bank support banks still find it expensive to borrow. so the bank of england, together with the government, has set up the funding for lending scheme ( fls ) which provides banks with access to finance for up to four years at below prevailing market rates for term funding. crucially, the more banks lend to uk households and businesses, the more they can borrow from the scheme and the cheaper is that funding. that provides a powerful financial incentive for banks to supply more credit. more than 20 banking groups, including the five largest lenders to the uk real economy and covering nearly 80 % of all such lending, have so far signed up. since the scheme was announced bank funding costs have fallen by around 100 basis points ( see chart 1 ). not all of this is attributable to the fls – the announcement by the ecb of outright monetary transactions has also played an important role. but it is noteworthy that uk bank funding costs have fallen by more since june than have european bank funding costs ( see chart 2 ). the effect of the fls will be seen in the lending data only after some months because of the time it takes for banks to change their lending strategies and for data to be collected and published. the fls can be only a temporary scheme. the window of opportunity which it provides must be used to restore the capital position of the uk banking system. i am not sure that advanced economies in general will find it easy to get out of their current predicament without creditors acknowledging further likely losses, a significant writing down of asset values

jon cunliffe : market liquidity and market - based financing speech by sir jon cunliffe, deputy governor for financial stability of the bank of england, at the british bankers association international banking conference, london, 22 october 2015. * * * according to oscar wilde, there is only one thing in life worse than being talked about and that is not being talked about. wilde of course was not a banker. and although he retained his notoriety until well after his tragic and unjust end, even he probably never experienced the sustained and hostile public attention which bankers and the banking system worldwide have experienced over the past eight years. so it will probably come as a relief to those of you here at the bba international banking conference that i do not today intend to talk – in the main – about banks and bankers. rather, i want to talk about market not bank - based finance and about market liquidity. i hope you will not find that worse than being talked about. i will, however, make some important points at the outset about the reform of the regulation of the banking system. that is not just for any of you that would otherwise have withdrawal symptoms. it is to illustrate how far we are into the implementation phase of that reform programme, what remains to be done and, from the vantage point of a macroprudential regulator, how i view the future now that we are eight years on from the financial crisis and memories are beginning to fade. on the first point, the implementation phase, it is illuminating in itself that from a macroprudential point of view i have also chosen to talk about something else today. that is not to say that there is nothing that remains to be done. there is a vast amount of complex and difficult implementation that still needs to happen. my colleague, andrew bailey, will set out in a speech tonight the progress we ’ ve made so far on prudential regulation and three big areas of implementation left to complete : the senior managers regimes, structural reform and competition. but as i have said before, the contours of the reformed regulatory framework for banks are clear – the basel 3 capital and liquidity regime for banks, the reforms that address too big to fail, especially the regime for loss absorbing capacity in resolution that needs to be held by global systemic banks – which goes by the unlovely acronyms of tlac and mrel and which is on course to be agreed by the g20 in antalya this november