in anticipation of new regulatory requirements. among companies in the uk, us and europe, there has been a significant increase in their liquid asset holdings, of around $ 0. 5 trillion since 2008, mostly for precautionary purposes. and among institutional investors, there has been a further portfolio switch into bonds since the crisis. since 2009, the size of us bond funds has more than doubled, rising from $ 1. 5 trillion to $ 3. 5 trillion. as after the great depression and the asian financial crisis, this precautionary behaviour has not been confined to the government bond market. it has affected spending behaviour among households and companies too. and, as previously, the consequences for the wider economy have not been benign. in 2008, households and companies were running a combined financial deficit ( income less spending ) of 2. 4 % of gdp in the us and 1. 5 % of gdp in the uk, while in the euro - area they were running a small surplus of 2. 4 % of gdp ( chart 10 ). in other words, the private sector in aggregate was neither saving nor dissaving to any great degree. see imf financial soundness indicators. bis central bankers ’ speeches by 2010, the private sector had switched to a large financial surplus of 7. 2 % of gdp in the us, 8. 2 % of gdp in the uk and 5. 8 % of gdp in the euro - area. the private sector was now saving and in significant scale. this precautionary behaviour, as after the great depression, has proved persistent. it has only recently started to normalise. this is a 21st century paradox of thrift and precaution. the psychological scars of the great recession, as after the great depression, have proved lasting and durable. they help explain the sluggishness of the recovery, and the adhesiveness of interest rates, since the crisis. and, if the past is any guide, these scars may heal only slowly. recession risk psychological scarring affects how people perceive and respond to risk in the past. as important for monetary policy, however, is the economic and financial risk people expect to face in future. another lower left tail event could further frazzle the nerves and set back recovery and risk appetite. just how likely is that? looking at the long - run pattern of growth, across countries and time, gives some guide to the probability of a future tail event, such as a recession. as chart 8 illustrates

time. and this could trigger mass exodus either by holders of rated assets or, in cases where banks themselves are rated, by depositors or other counterparties. of course the rating agencies provide valuable services and information. and their increasingly public significance raises calls for them to be regulated. in my view, attempts to do so could actually create additional moral hazard, particularly in today ’ s compensation orientated society. if rating agencies were regulated who would you blame if mistakes are made : the rating agency, the regulator, or both? 9. implications of networks finally we need to consider the financial stability oversight implications of the networks which increasingly hold the financial system together. these are the plumbing or the nervous system of the financial world. this is the world of payments, clearing and settlement systems. such networks can and do both generate significant economic benefits, but they also create vulnerabilities. the economic benefits of scope and scale from such networks come as a result of the development of standardised messaging, it protocols and other areas of interoperability. however, the universal reliance on these networks makes the financial system increasingly vulnerable to any failure, whether financial or physical. if the market all settles in one system and is faced by single points of failure how could we work around these? secondly, if there is a failure, what about data retrieval? if an entity containing a series of uncompleted transactions fails, how can that data be retrieved or recreated so that you can get markets up and running again? fortunately significant effort is being put into developing innovative solutions : something which may give confidence to the many who are unfamiliar with this area. 10. implications of the new environment for financial stability oversight it will be clear from the litany of issues i have just mentioned - new players, new products, new risk transfer techniques and interconnections - that the changes in today ’ s financial world are indeed quite profound in relation to financial stability oversight. but are they net benign or net negative? the world here is sometimes portrayed as being in two designated camps. this may be a bit of a parody, but i am sure the two protagonists would forgive my little sketch. the bullish view is led by governor greenspan. this holds that, in the new financial world, banks now possess the enhanced ability to disperse risk - to offload risk to others, be they investors, insurance companies or whatever. the banks have thereby been able to weather a variety of shocks, which in an earlier age might well have