: the liquidity coverage ratio and liquidity risk monitoring tools ( bis. org ) bank of england - first, banks can holds assets other than reserves to meet the lcr. the list of other eligible ‘ high quality liquid assets ( hqla ) ’ includes government bonds, multilateral development bank paper and ( at appropriate haircuts ) a range of higher - quality corporate debt, covered bonds and even equity. 7 in practice, such assets form only a small part of smf banks ’ sterling liquid asset buffers today ( figure 8 ). but that ’ s unsurprising given how many reserves we have injected into the system. as qt progresses, banks ’ preferred holdings of non - reserves hqla will depend, amongst other things, on asset availability, relative rates of risk and return, regulatory rules ( reserves are currently exempt from banks ’ leverage ratio calculations in the uk ) and perceived ease of monetisation in a stress. i will return to these points shortly. figure 8 : smf banks ’ sterling hqla and aggregated lcr - weighted outflows source : bank of england. data as of summer 2023. outflow estimates are on same basis as shown in figure 7. - second, bank deposits – a key driver of transactions and precautionary demand – are likely to decline as monetary accommodation is withdrawn and qe unwinds. the scale of this effect is uncertain. viral acharya, raghuram rajan and their co - authors have recently noted that there was no material decline in the us when 7 see annex 4 of basel iii : the liquidity coverage ratio and liquidity risk monitoring tools ( bis. org ) bank of england the federal reserve first tried qt ( figure 9 ). 8 however, deposits have started to fall in both the uk ( figure 6 ) and the us ( figure 9 ) during the current tightening cycle. figure 9 : us bank deposits and central bank reserves source : federal reserve bank of st. louis. - third, higher longer term interest rates are driving a shift from sight to time deposits ( which have lower outflow rates ), as depositors seek higher returns and banks bid up for funding. in the uk, the ratio of sight to total deposits has already fallen from 70 % to 64 % and would have a lot further to fall to hit the 40 - 50 % pre - qe range. 9 other factors may push up on the true pmrr. in particular, banks tend to

inflation target - rpix ( that is, retail prices excluding mortgage interest payments ) of 2. 5 % - is set by the government and confirmed in the budget each year. and this target is symmetrical. we on the mpc are as concerned about inflation being below 2. 5 % as we are about it being above 2. 5 %. indeed, if inflation is more than 1 % above or below target, the governor is required to write an open letter to the chancellor to explain why. but the accountability of the mpc is much wider than this. it has to answer to court ( the bank ’ s board made up largely of non - executive directors ) and to the treasury select committee. but of equal importance, through publication of the inflation report and the minutes of its monthly meetings, the mpc answers to the public, setting out in some detail the decisions it has made. and this accountability is personal. the votes of each of the nine individual members are recorded in the minutes. as you might imagine, knowing that one ’ s voting record will be subject to public scrutiny helps wonderfully to concentrate the mind. but we think it is important that differences of view are properly reflected ; and nor is it altogether surprising that differences of view exist given the uncertainties in economic forecasting. transparency is another key ingredient of the new framework. holding mpc meetings on a regular monthly cycle, with minutes published within two weeks, contrasts with the more ad hoc approach of the past, chancellors announcing changes with little or no notice and with limited explanation. the minutes not only record the discussion within the mpc and explain the decision reached but also list the data that the committee has considered. the committee relies primarily on official statistics but these are often produced on aggregate basis and with a lag. the bank, therefore, relies to a considerable extent on its established network of twelve regional agents who have the role of finding out from local businesses and firms their views on the state of the economy. the agents maintain direct contact with around 7, 000 businesses across the uk and provide a monthly report for each region to the mpc. where there are particular concerns, the mpc also commissions the agents to carry out inquiries on specific issues. because of the time it takes for changes in interest rates to impact on inflation, it is perhaps too early to judge the success of these new arrangements. we could argue that we have made a reasonable start, given the period of sustained growth with low inflation and falling unemployment