to offset this impact as part of our planned 2017 review of the leverage ratio framework. to be clear, removing central bank reserves from the leverage exposure measure will not neutralise all of the impact of the leverage ratio that darell and arvind highlight – for example repo will be unaffected by this change. however it should address some of the other issues around money market rate dispersion and pass - through efficiency raised in the paper. • if central bank reserves are included in the leverage exposure measure, banks must think carefully before accepting a deposit. if it implies an increase in their overall asset size, their leverage capital requirement will increase commensurately, and that will bring a shadow regulatory cost of the same order of magnitude as those calculated in the paper. this disincentivises competition for deposits, and drives a wedge between the central bank policy rate and rates that banks will pay on wholesale deposits. • if central bank reserves are removed from the exposure measure it instantly gives banks somewhere to place cash without impacting their leverage ratio. they would therefore maximise profits by competing for deposits at rates all the way up to the rate that can be earned on reserves at the central bank, thus improving passthrough to average bank deposit rates and strengthening the transmission of for example, imf ( 2009 ) and aikman et al ( 2014 ), and others. bis central bankers ’ speeches monetary policy to the real economy. and the early indication from market participants is that they do indeed expect this change to strengthen the link between money market rates and bank rate. in short, although regulatory innovations such as the leverage ratio are here to stay, we can and should attenuate some of their impact on money market function where it is possible to do so without reducing the financial stability benefits. this process of reducing unintended consequences is made easier by close co - ordination of different policymakers, which at the bank of england is facilitated by having monetary, macro - and micro - prudential policy all under one roof. the role of central banks in money markets let me turn to the role of central banks as a participant in money markets. just as private market participants have grappled with new challenges in the post - crisis world, so too have central banks. and we have responded in three ways. first, we have become more flexible in the way we implement changes in the policy rate. the frameworks we use to influence market rates need to recognise the fact that there are a

supervised the solvent exit of nineteen banks, excluding branches of foreign firms, resolutions, mergers / acquisitions and licences surrendered as part of a wider group restructurings. 16. in the uk, a key element of this is the resolvability assessment framework : resolvability assessment framework | bank of england 17. for example, the need to make so - called ‘ fair value adjustments ’ to the book value of the acquired bank ’ s assets can create a negative capital impact on the acquiring bank ’ s balance sheet at the outset. 18. minimum requirements for own funds and eligible liabilities. 19. this evidence is discussed in our consultation on the topic : cp10 / 23 – solvent exit planning for non - systemic banks and building societies | bank of england 20. in principle this argument might apply to large, complex firms as well – but those firms are required to issue bail - in debt instead and in practice it seems less likely that we could pull off such a solvent wind - down for the whole of a large firm. 21. while this speech is focused on banking, i should note that we are undertaking similar work on ease of exit for insurers – taking account of differences in business models across the two sectors. 22. the pra has consulted on the definition of a firm that would be in scope of the simpler prudential regime for small domestic - focused banks and building societies ( these proposals were first consulted on in cp5 / 22 - the strong and simple framework : a definition of a simpler - regime firm | bank of england, and updated in cp16 / 22 – implementation of the basel 3. 1 standards | bank of england ). for instance, a firm must have total assets ( measured on a three - year moving average basis ) of no more than £20 billion. the pra has also consulted on simplifications to liquidity and disclosure requirements for these firms in february 2023 ( see cp4 / 23 - the strong and simple framework : liquidity and disclosure requirements for simpler - regime firms | bank of england ). 23. and many of the future tools i ’ ve just discussed about continuity and outcomes in insolvency would also only be applicable to subsidiaries, not branches. sam woods deputy governor for prudential regulation and chief executive officer of the prudential regulation authority