the bank. the government has today announced the appointment of anthony habgood to lead the bank ’ s court of directors and the oversight committee. i welcome the appointment of someone of his depth and breadth of corporate experience. independent oversight by the committee he will chair can strengthen the bank ’ s legitimacy and effectiveness. the oversight committee has access to internal papers, is able to observe meetings of policy committees, and is responsible for reviewing all aspects of the conduct of the executive of the bank, including the delivery of policy, the design of and adherence to rigorous processes and procedures, and the monitoring of our transparency and openness. modelled on the independent evaluation office of the imf, we will create a unit to support this, with a director reporting to the chairman of the oversight committee. it is not just our governance but also our commitment to transparency and openness that must be further enhanced. transparency and openness are central not just to our legitimacy to perform these new tasks on behalf of the citizens of the united kingdom. they are also central to our effectiveness in performing them. just as governor king described in his mais lecture 9 years ago, openness about what policy is seeking to achieve can make it more effective. 21 in monetary policy, that helps to anchor inflation expectations and to support countercyclical movements in the policy setting. to that end, we have introduced forward guidance to reduce uncertainty about the way monetary policy will be set as the recovery gains pace. our inflation report has evolved in the past year to contain more information about the key judgements underlying our forecasts and to widen the set of economic indicators for which we publish forecasts to include the labour market, components of gdp, the world economy and household incomes and saving. it will evolve further, including using our new organisational structure to draw stronger distinctions between staff and mpc forecasts. we will also review the case for releasing transcripts of our policy meetings after some years, and report publicly to the oversight and treasury select committees on the outcome of that review. through our strategic plan, we will also increase the transparency of our work on financial stability. we will publish the results of regular bank stress tests. as with monetary policy, we also intend to publish more of the research and analysis underlying our policy choices. over see king ( 2005 ). bis central bankers ’ speeches time, the financial sector will be better placed to anticipate our responses and as with monetary policy, increased transparency will make us not just accountable, but

assessment of the risks to which they must be resilient. as with monetary policy, expectations matter and the system will be more resilient if the bank ’ s moves can be anticipated. market operations and prudential policy the synergies i have identified so far explain why it makes sense for monetary policy and prudential policies to be operated by a single institution, but there are also complementarities between prudential policy and the way a central bank uses its balance sheet and controls the supply of high - powered money. in a concentrated banking system such as the uk ’ s the resilience of a subset of large institutions has a disproportionate effect on the resilience of the system. one might think that microprudential regulation is then enough to guarantee systemic stability. but that is not so when there are systemic externalities or financial accelerator effects. the latter operate through feedbacks in the macroeconomy, and would depend ( among other things ) in the short run on the response of monetary policy. a macroprudential authority – with a macroeconomic viewpoint – therefore complements microprudential supervision even in a concentrated banking system. see bank of england ( 2009 ) for a discussion. blinder ( 2010 ) makes this argument in the context of potential conflicts between safety and soundness considerations and monetary policy. bis central bankers ’ speeches the design and operation of our liquidity facilities have important synergies with prudential policy. the terms on which we supply liquidity in times of stress affects the level of selfinsurance banks choose. if we are too strict, banks have to over - insure at significant cost by holding an excess of low - yielding liquid assets rather than loans, and markets will freeze too quickly in crises. but overly permissive terms create a moral hazard risk in the form of banks running excessive liquidity mismatches in normal times. 16 prudential supervisors can mitigate the moral hazard risk by imposing minimum liquidity requirements. but there is no point in setting those requirements at a very high level when the central bank is prepared to lend freely against good collateral to solvent institutions. so it is important to coordinate liquidity requirements and banks ’ reliance on liquidity insurance from the bank of england. striking an efficient balance is most likely when responsibility for prudential policy also lies with the central bank. 17 and it explains why we are announcing management changes today to enhance that coordination, with paul fisher –