imbalance is developing. for financial regulation, its role is to reduce the procyclical behaviour in the financial institutions by limiting excessive risk - taking. and the role of education and disclosure is to promote greater awareness of risk by making available information to improve risk assessment by market, so that extreme shifts in sentiment and confidence are avoided. important in this context for emerging markets is the abrupt shift in investors ’ confidence that drives sudden reversals of capital flows and liquidity. but amongst all these measures, financial regulation remains the core approach to addressing procyclicality. this is because large and sustained booms on credit and asset prices, once they occur, are typically a reflection of the failure of financial institutions to manage risk. let me now turn specifically to financial regulation. to the extent that financial regulation contributes to procyclicality and excessive risk - taking, supervisors could design their regulation in a counter - cyclical fashion to reduce procyclical behaviour of financial institutions. reflecting this thinking, discussion to date on the role of financial regulation to address procyclicality has focused on four areas. the first is to reduce procyclical tendencies of the basel ii capital regulation by aligning capital requirement more with a longer - term perspective of risk. on this, key measures under discussion include : ( 1 ) building capital buffers by capital conservation measures ; ( 2 ) reducing procyclical effects of minimum capital requirement by adopting through - the - cycle risk parameters to achieve a less pro - cyclical capital ratio ; ( 3 ) promoting forward - looking provision that can cover loan losses that are not yet incurred but expected, with supporting accounting rule and valuation ; and ( 4 ) using additional capital charge for the large and more complex banks based on indicators of systemic relevance. the second area of focus is the use of macroprudential supervision. the aim is to use prudential measures, when needed, to restrain the build - up of risk either in the overall financial markets or in specific asset class. examples here include use of loan - to - value ratio on real estate loans and margin requirements for derivatives and securities transactions. also, a recent idea of using leverage ratio to help take account of the unknown risk beyond those identified by the risk - adjusted capital regulation also falls into this category. the third area of focus is the macro - surveillance of the financial system to monitor aggregate risk and identify structural change that opens up new vulnerabilities by making liquidity and capital regulations

financial stability and low for long speech given by sir jon cunliffe, deputy governor financial stability, member of the monetary policy committee, member of the financial policy committee and member of the prudential regulation committee society of professional economists annual conference, london 14 october 2019 i am grateful to katie low, rand fakhoury, richard harrison, iren levina, ryland thomas and matthew waldron for their help in preparing these remarks. all speeches are available online at www. bankofengland. co. uk / news / speeches jane austen ’ s face appears on the bank of england ’ s latest £10 note, which entered circulation in september 2017. but the bank ’ s association with one of the world ’ s finest authors goes back much further : as the meticulously kept records of the bank show, the successful novelist invested much of the proceeds of her writing in bank of england annuities. in july 1815, for example, she purchased ‘ navy five per cent annuities ’ – an undated bank of england security – with a face value of £300. ‘ navy fives ’ were a popular investment during the napoleonic wars, paying annual interest, as the name suggests, of 5 %. jane did not purchase the stock at par value – research using the bank ’ s archives has established that she paid around £250 – making an annual nominal interest rate on her risk free investment of nearly 6 % 1. today, a comparable risk free asset – a 30 year gilt – is yielding around 1 % nominal. and had jane been living in the euro area today, in germany for example, she would only have been able to invest for the long term at a negative interest rate – the 30 year bund yielded minus 0. 27 % in august. nominal interest rates do vary through time of course. since the napoleonic wars and outside wartime, uk long term nominal rates moved mainly in a 2 - 5 % range until the decades of inflation following the second world war, during which they rose above 15 %, before falling back as inflation was brought under control. they have been falling ever since. the fall in long rates is a phenomenon that has been building since the late 1980s, gathering pace after the financial crisis ( chart 1 ). during the past couple of months, uk long nominal rates have dropped to around, and sometimes even below, 1 %. they have not been this low in the past 200 years. the same is true, more generally, for