. under stress, firms will only see the fs increase under a ratings downgrade, thus completely setting aside any information contained in market spreads. such ratings downgrades may not occur immediately, leaving a window where policyholders may be less well protected. further, where ratings downgrade by a notch but remain within the same cqs, again the fs is unchanged. another way of looking at the question is to consider how much of the credit spread the fs strips out in percentage terms [ chart 11 ]. so, at year - end 2020 perhaps 70 % of the credit spread on such assets is removed for retained risks, with a much lower figure if spreads reached the levels seen in the global financial crisis. the insensitivity to market signals is a feature of the current fs construct, and is why for internal model firms we set an expectation in supervisory statement 8 / 18 : “ solvency ii : internal models – modelling of the matching adjustment ” 10, that when determining the fs in stress firms should not simply mechanistically recalculate the fs, but should determine a stressed fs that better reflects the risks retained. to be more forward looking, one alternative could be for an approach where the risk allowance reflects compensation for : expected losses ; uncertainty around expected losses ; and any further risks retained by investors. such an approach might place less weight on credit ratings, which particularly in the case of internal ratings present challenges around availability of data, and expertise in the business and risk illustrative bonds of 10 - 15 year term, duration c. 10 year at ye20 https : / / www. bankofengland. co. uk / - / media / boe / files / prudential - regulation / supervisory - statement / 2018 / ss818. pdf all speeches are available online at www. bankofengland. co. uk / news / speeches and @ boe _ pressoffice teams. a framework that takes some signals from market prices could be more forward looking, for example, recognising the market pricing of climate risks, rather than a backwards view of the risks of failure. however, any alternative framework may bring in new risks, potentially in being over risk - sensitive ; or for example if provisions are linked to credit spreads, there may be incentives to value assets nearer the top end of the plausible range, understating the credit spread. while this is likely a smaller risk for traded corporate bonds,

of the response to failure of the pre - crisis capital framework ; and our intervention in risk - free benchmark rates is intended to avoid a co - ordination failure in which the most appropriate and robust benchmarks would not be adopted by the market. so while it is true to say that central banks ’ footprint in money markets is larger now than in the days prior to the crisis, this has been out of necessity rather than design. as a tribe, central bankers retain a strong belief in financial markets ’ ability to facilitate price discovery, allocate capital efficiently, and provide useful signals about the macro economy and financial stability. references duffie, d and krishnamurthy, a ( 2016 ), “ passthrough efficiency in the fed ’ s new monetary policy setting ”, preliminary version for presentation at the 2016 jackson hole symposium. fender, i and lewrick, u ( 2015 ), “ calibrating the leverage ratio ”, bis quarterly review, december, pages 43 – 58. grill, m, hannes lang, j and smith, j ( 2015 ), “ the leverage ratio, risk - taking and bank stability ”, preliminary version ; www. eba. europa. eu / documents / 10180 / 1018121 / grill, % 20 lang, % 20smith + - + the + leverage + ratio, % 20risk - taking + and + bank + stability + - + paper. pdf. haldane, a and madouros, v ( 2012 ), ‘ the dog and the frisbee ’, www. bankofengland. co. uk / archive / documents / historicpubs / speeches / 2012 / speech596. pdf. imf ( 2009 ), global financial stability report, april. laeven, l and valencia, f ( 2010 ), “ resolution of banking crises : the good, the bad and the ugly ”, imf working paper, 10 / 146. pozsar, z ( 2016 ), “ money markets after qe and basel iii, ” credit suisse june 2016. bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches