i am writing to inform you about how the changes to crown immunity … in relation to planning legislation, will affect flying national flags …. flags are defined as advertisements under the town and country planning ( control of advertisements ) regulations 1992. under these regulations you are allowed to fly the national flag of any country … from a single vertical flagpole without requiring the prior express consent of the local planning authority. the european union flag is not classified as a national flag under the current regulations. … the office of the deputy prime minister is proposing to change the regulations ”. until then, however, consent is required. the letter continued : “ i have been advised that consent usually takes six to eight weeks to obtain and costs £75. you need to send the completed advertisement consent form plus fee with a covering letter explaining when and where you wish to fly the flag providing details of the size of the flag and photos of the flagpole in relation to the building. ” chancellor, you can be sure that the bank of england will abide by the rules - although we may not fly many flags, both literally and metaphorically. the bank now has a very clear focus on maintaining monetary and financial stability - the former defined by the inflation target and the latter by the revised memorandum of understanding between bank, fsa and treasury published in march. the great strength of the 1997 reforms to the monetary policy process is that they establish clear rules of the game for making decisions on interest rates. the monetary policy committee sets interest rates each month to meet the inflation target. but how do we implement those decisions in the market? our objective is to ensure that the policy rate set at the monthly meetings of the mpc is the rate in the money markets until the following meeting. for many years, the bank operated several times a day in the money markets, but that hyperactive approach did not succeed in stabilising the overnight interest rate which remained more volatile than in most other advanced countries. it was important to move to a simpler system in order to reduce that volatility, and the new system of money market operations, which was introduced last month, has done precisely that. the bank now deals in the markets only once a week. almost all banks and building societies now have access to the bank. and they no longer have to balance their books with us at the close of business every day, but instead must achieve a target balance with us on average over the month running between mpc meetings. for the first time in its history

so it seems sensible to link minimum capital requirements to a confidence level. in its work, the basel committee's approach has been to set those requirements equivalent to an investment grade rating. it is important that this rating level is maintained. first there is growing evidence that without it a large bank would have insufficient freedom of operation as their counterparties'limits on unsecured exposures stemming from interbank, swap and fx transactions to the bank concerned would be too small. second, the frequency of banking crises does not suggest that the current minimum level of regulatory capital is too high : four out of the g - 10 countries have suffered a banking crisis over the last decade. another important issue is the possible impact of any new capital requirements on the business cycle. it has been argued that capital requirements can potentially contribute to a credit crunch because in a period of severe downturn, they can become binding should write - offs and loan loss reserves reduce the amount of capital which a bank has available to back new lending. if banks are insufficiently forward - looking in their assessments of risk, more risk - sensitive capital requirements could lead to an added pro - cyclical effect to the extent that capital requirements would increase in recessions as the average riskiness of borrowers rose. it is therefore essential that banks take a longer term view of creditworthiness. we think, however, that such fears of procyclicality are exaggerated and are more than matched by the other benefits from the new regime - in particular, the reduced opportunities for regulatory arbitrage and the incentives given to banks to strengthen their risk management. moreover, a number of factors seem likely to mute the impact of the new proposals on the cycle. first, many banks have a buffer of capital well above the regulatory minimum. second, in a recession, demand for bank credit may anyway fall. third, to the extent that banks ( and ratings agencies ) assign assets to risk categories in a forward looking manner, it should be possible to avoid wholesale reclassifications to lower credit - risk categories during cyclical downturns, particularly those of normal amplitude. conclusion the new accord will make a significant contribution to strengthening the international system. but even under the current accord, banks should find themselves better placed than in the past to deal with any sudden downturn. a soft landing for the us still seems the most likely outcome but the system is in far better shape now than a decade ago to absorb, if necessary, a somewhat harder bump. i