speech, ‘ seven moments in spring ’ gives a vivid and excellent account from the central banking ‘ front line ’ of this extraordinary period. all speeches are available online at www. bankofengland. co. uk / news / speeches however, the first phase – the initial shock and adjustment to a far more challenging economic outlook in the near term – has passed. while it is fresh in the memory, it is important to ask : how has the financial sector weathered the initial storm? how have the reforms made a great cost and effort since the global financial crisis performed under stress? and, on the basis of what we have seen so far, which, if any, issues are likely to need further attention by the regulatory and supervisory community? we need, of course, to bear in mind throughout the scale of the current shock. we have to go back over 300 years to find a similar sudden decline in economic activity. there is no precedent in modern economic history for the economic impact of ‘ lockdown ’ and ‘ social distancing ’. nor should we forget that, unlike the global financial crisis, this shock originates in a natural disaster rather than in the failings of the financial sector itself. but the objective of the reforms of the past 10 years has not just been to make the financial system resilient to the normal run of events or to prevent the financial system itself from generating another crisis. given what we learned, 10 years ago, about the cost of a breakdown in the financial system, the objective of the reforms has been precisely to make the financial system resilient to a ‘ tail event ’ regardless of how and where that event originates. our aim has been first to ensure that whatever the shock, it is not amplified and made worse by weaknesses in the financial system and second, that well into the range of very severe adverse events – the so called ‘ tail events ’ – the financial system is able to support the real economy and dampen the shock. assessment so, measured against that yardstick, how well has the system performed so far? all speeches are available online at www. bankofengland. co. uk / news / speeches the centrepiece of the post gfc reforms has been to require banks to hold ‘ buffers ’ of loss absorbing capital so that they can absorb losses from a very severe shock without the massive deleveraging and the bank failures which caused so much economic damage 10 years ago. and within the banking system, to strengthen even further the core

the downside. they are mainly related to slow implementation of structural reforms in the euro area, geopolitical issues and imbalances in major industrialised countries. these factors have the potential to dampen sentiment for longer than currently assumed and delay further the recovery of private investment, employment and consumption. according to eurostat ’ s flash estimate, euro area annual hicp inflation was 2. 2 % in december 2012, unchanged from november and down from 2. 5 % in october and 2. 6 % in august and september. on the basis of current futures prices for oil, inflation rates are expected to decline further to below 2 % this year. over the policy - relevant horizon, in an environment of weak economic activity in the euro area and well - anchored long - term inflation expectations, underlying price pressures should remain contained. risks to the outlook for price developments are seen as broadly balanced over the medium term, with downside risks stemming from weaker economic activity and upside risks relating to higher administered prices and indirect taxes, as well as higher oil prices. turning to the monetary analysis, the underlying pace of monetary expansion continues to be subdued. the annual growth rate of m3 remained broadly unchanged at 3. 8 % in bis central bankers ’ speeches november 2012, after 3. 9 % in october. m3 growth continued to be driven by a preference for liquid assets, as m1 growth increased further to 6. 7 % in november, from 6. 5 % in october, reflecting inflows into overnight deposits from households and non - financial corporations. following our non - standard monetary policy measures and action by other policy - makers, a broadly based strengthening in the deposit base of mfis in a number of stressed countries was observed. this allowed several mfis to reduce further their reliance on eurosystem funding and helped to reduce segmentation in financial markets. m3 growth was also supported by an inflow of capital into the euro area, as reflected in the strong increase in the net external asset position of mfis. there has been little change in credit growth, which remained weak in november. the annual rate of decline in loans to the private sector ( adjusted for loan sales and securitisation ) remained at – 0. 5 % in november. this development reflects further net redemptions in loans to non - financial corporations. net redemptions, however, were less pronounced than in previous months, amounting to €4 billion in november, after €7 billion in october and €21 billion in september