worth, and so to its capability to meet any future fund shortfall. ) how much risk a company should take in its core business and in the provision of pensions is obviously a matter for its board. a famous paper in corporate finance 5 finds that, subject to some ( admittedly fairly strong ) assumptions about tax etc, the market value of a company ( measured as the sum of the value of all its financial liabilities, equity and debt ) should not depend on its capital structure. rather, its capital structure affects the risk to equity holders, and so the headline return they should rationally require to compensate for risk. within this framework, defined - benefit pension schemes can be viewed as deferred compensation and so as entailing a form of indebtedness ( in many cases, de facto indexed - linked borrowing ) for their sponsors, to be ‘ serviced ’ alongside their more conventional external indebtedness. perhaps that has become most obvious when a fund is calculated as being in deficit. it would seem that in recent years there has been a keener awareness of this way of thinking analytically about pension obligations. if there has been an ‘ awakening ’, maybe it was triggered by a combination of the volatility of the value of equities held by funds, especially when they fell sharply a few years ago ; the volatility of the discounted value of their liabilities as long - maturity real rates fell ; regulatory requirements governing the closure of deficits ; and fluctuations in the net value of funds having for the first time to be reflected in firms ’ capital in their financial accounts. firms may, therefore, have been reviewing their preferences between risk - taking in their core business and risk - taking via pension provision, and for a while may have been unusually uncertain about how equity markets value those different sources of uncertainty. if so, that may conceivably offer part of the explanation for the measured recovery in uk business investment having been weak, relative to the economy ’ s total output, compared with past cycles ( charts 11 and 12 ). some have suggested that the need to close deficits may have been a factor, via the call on cash flows. the possibility i am airing is that another factor may be the size of a scheme ’ s discounted liabilities and the prospective volatility of the associated fund ’ s net value relative to the sponsor ’ s underlying business and capitalisation. i do not want to push that too far. there have,

costs has been very significantly reduced. the introduction of the new monetary regime did not, and of course could not, remove uncertainty about the quarter - to - quarter, or indeed year - to - year, path of the economy and inflation. and so there remains a degree of unavoidable uncertainty about the short - term path of official rates, as the monetary policy committee responds to cyclical developments. transparency can reduce that uncertainty, through our making clear what we think is going on in the economy and how, generally, we react to changes in the outlook. we do that through the minutes of our monthly meetings and the quarterly inflation report ; and, in terms of our individual analyses, through speeches, etc. but, like anybody else, we cannot predict with certainty what will happen in the economy. there are always material risks around the central outlook. we have to weigh those risks in our policy decisions in much the same way as you do in your business and financing decisions. in the midst of all this unavoidable uncertainty, however, a few things are not in doubt. the mpc ’ s official interest rate is certain. so there should be no uncertainty about the general level of overnight rates in the money markets. in fact, though, overnight rates in the uk have historically been highly volatile. various steps taken over the past decade or so moderated that volatility – with some success ; it has for some while been much lower than in the mid - 1990s ( chart 1 ). but it has remained greater – from day to day, and during the day – than overnight rates in dollars, euros etc ( charts 2 and 3 ). that has created uncertainty for users of the sterling money markets – banks, asset managers and, of course, corporate treasurers. avoidable uncertainty. it is the bank of england ’ s responsibility to remove that uncertainty as much as we possibly can. and yesterday, after more than three years ’ preparation and extensive collaboration with market participants, we introduced a completely modernised system to do just that. it provides a new framework for the bank ’ s implementation of monetary policy ; our operational engagement with the banking system ; and for the sterling money markets. i shall spare you the details, but i do want to sketch the main features of the system, by way of underlining that it is directly relevant to you as corporate treasurers. i am keen that you should hear this directly from the bank. for as long as anyone can remember, a