a robust way to create transparency on bank funding costs, libor is not that rate. because the market it measures is a small to disappearing part of overall bank funding, it can no longer claim to accurately reflect the marginal cost of funds for banks, nor to provide end users with confidence their interest payments are directly linked to those costs. it is a common human trait to state proudly ‘ i ’ m sticking to what i know ’, as though familiarity can itself outweigh the benefits of change or hide the weaknesses of the status quo. however, the market volatility we saw during march and april only served to underscore the long - standing weaknesses of the libor libor submissions are classified in three levels. level 1 is ‘ transaction - based ’ submissions — an average of transactions in unsecured deposits and primary issuances of commercial paper and certificates of deposit. level 2 is ‘ transaction - derived ’ data, including information from historical transactions. level 3 is ‘ expert judgement ’ — where a panel bank has insufficient level 1 or 2 transactions, it estimates the rate at which it could fund itself in the unsecured wholesale funding market, based on an approved procedure. further details are available at : www. theice. com / publicdocs / ice _ libor _ methodology. pdf interim financial stability report, may 2020 – box 1 the continued importance of the transition away from libor, https : / / www. bankofengland. co. uk / - / media / boe / files / financial - stability - report / 2020 / may - 2020. pdf all speeches are available online at www. bankofengland. co. uk / news / speeches benchmark. libor rates – and hence costs for borrowers – rose as central bank policy rates fell to support the economy. 4 it is logical that credit spreads on bank debt ( a measure of perceived risks in lending to banks ) should increase during periods of stress. it is also unsurprising for banks to be attracted to the idea of being able to pass that cost directly onto their customers, but it does raise an important question : given this cost is passed directly onto borrowers through the interest rates they pay, how well does that rate actually reflect the cost of bank funding? there have been significant changes to the way banks fund themselves since the global financial crisis, making them more robust. regulatory changes have significantly reduced dependence on the fickle shortterm unsecured markets that li

a central bank on the highest of the three parallel lines has ten times the staff per million population as one on the lowest line. the extent of this dispersion is more apparent in figure 5 which shows the number of staff per million population for the large countries. with only around 3, 500 people - down by more than 50 % over the last twenty years and still falling fast - the bank of england itself is one of the most modestly staffed in relation to its population. in contrast to the significant results found by fry et al. from their sample of developing countries, regression analysis on the industrial country data shows only weak evidence of small economies of scale. nor did other variables tested on industrial countries yield any significant results. as for the transition economies, their staff numbers generally conform to those in industrial countries with similar populations. the exception is the bank of russia, whose staff looks abnormally large. some of these central banks are still growing as they seek to carry out their new functions ; but one or two, like the national bank of hungary, are already reviewing what they are doing and how they do it, and are slimming down. by the end of this year, they expect to have 40 % fewer staff than two years ago. these variations in staff numbers naturally have an impact on the running costs of central banks, but relative salary levels and non - staff costs are obviously also important. figure 6 is based on data for 1992, taken from central banks ’ annual reports. the vertical axis shows the gross operating costs of each central bank as a percentage of gdp. the horizontal axis shows population. for a swathe of countries across the bottom of the chart - from new zealand at 0. 06 % through sweden, denmark, switzerland, the netherlands and australia ( 0. 04 - 0. 05 % ) to britain ( 0. 037 % ) and canada and the united states at 0. 03 % - there may be some scale effect, but several european countries do not fit this model at all. the central banks of italy and france - countries with the same population as the uk - then cost 5 and 3. 5 times more than us, and the picture has changed little since. some of the differences may be down to national culture, but another factor may be that the funds at the disposal of the different central banks vary widely. in particular, i suspect that some of our relative cheapness may be attributable to the bank charter act of 1844, since which time the