meeting the target later on by avoiding a disruptive bust. the crisis and subsequent great recession seem to make this logic even more compelling. but unfortunately, by the time an unsustainable credit boom has been diagnosed, a small increase in policy rates is unlikely to do much to cool it. and a large increase is likely to generate unacceptable collateral damage to the real economy. in a paper for the federal reserve ’ s annual conference at jackson hole a couple of years ago ( bean et al., 2011 ), i reported the results of some simulations of what might have happened if bank rate had been 200 basis points higher during the four years before the crisis began. the answer is that while the rise in real house prices over that period would have been less than half as large, the impact on overall real credit growth would have been pretty modest, reducing it by only a tenth – hardly enough to have a major bearing on the magnitude of the subsequent bust. moreover, output would have been some 3 per cent lower. monetary policy on its own therefore does not seem especially well suited to preventing credit / asset - price booms. so the crisis exposed not only the inadequacy of our understanding of the true nature of the risks that had built up in the financial sector, but also the need for suitable instruments to deal with them. one of the key reforms in the united kingdom following the crisis has been to establish a body – the financial policy committee ( fpc ) – with the responsibility for overseeing the stability of the financial system, together with specific powers to achieve that. the fpc will exist on a statutory basis once the financial services act has passed into law, but has been operating on an interim basis since june 2011. the fpc has two objectives. first and foremost, it is charged with identifying, monitoring and taking action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the uk financial system. but that is accompanied by a secondary goal : subject to protecting resilience, it should support the economic policy of the government, including its objectives for growth and employment. this formulation mirrors that for the monetary policy committee and should ensure that the fpc approaches its primary objective of ensuring resilience of the financial system in a way that does not unduly impede economic growth. seven of the members of the committee, including myself, are drawn from within the financial authorities : the bank of england and the financial services authority ( fsa ).

. ( a ) unweighted average of the spread between euro - denominated senior unsecured bonds and equivalent maturity swap rates for bonds issued by the major uk lenders, which have a residual maturity of between two and six years. ( b ) unweighted average of the 5 - year cds premia for the major uk lenders : an indicator of the spread on long - term wholesale bonds. chart 6 : central bank balance sheets ( a ) indices : jan uary 2007 = 100 federal reserve eurosystem bank of england source : bloomberg. ( a ) in local currency. bis central bankers ’ speeches chart 7 : sterling corporate bond yields per cent per cent qe2 qe1 investment grade, non - financial ( left - hand scale ) high yield ( right - hand scale ) source : bank of america / merrill lynch. chart 8 : international equity prices ( a ) indices : 4 january 2007 = 100 qe1 qe2 euro stoxx s & p 500 ftse all - share ( a ) in local currency terms. bis central bankers ’ speeches chart 9 : constraints on investment spending ( a ) percentages of respondents recessions uncertainty about demand inability to raise external finance cost of finance internal finance shortage sources : cbi, cbi / pwc and ons. ( a ) manufacturing, financial services and consumer / business services surveys weighted by shares in real business investment. companies are asked for factors likely to limit capital expenditure authorisations over the next twelve months. financial service companies are not asked to distinguish between a shortage of internal finance and an inability to raise external finance, so their single response is used for both questions. bis central bankers ’ speeches references aiyar, s, calomiris, c and wieladek, t ( 2012 ) “ does macropru leak? evidence from a uk policy experiment ” bank of england working paper no. 445. bean, c ( 2003 ) “ asset prices, financial imbalances and monetary policy : are inflation targets enough? ” in a richards and t robinson ( eds. ) asset prices and monetary policy, 48 – 76. reserve bank of australia : sydney. bean, c ( 2010 ) “ the great moderation, the great panic and the great contraction ”, journal of the european economic association, april – may. bean, c, paustian, m, penalver, a and taylor, t ( 2011 ) “ monetary policy after the fall ”, in macroeconomic challenges