wood from the trees - to identify and assess potential shocks, to understand how risk is distributed within the system, and to look for interlinkages that might cause a problem in one institution or market to spread and trigger wider difficulties. given the importance of london as an international financial centre, for a full assessment of uk financial stability, we must look beyond this country. so we also have to take a close interest in developments in overseas and international financial markets. the international bond market is of course a key example. we try to analyse the information in market prices and other data. but the real understanding of the latest developments comes from talking to market participants. credit risk transfer markets this is particularly important when it comes to financial innovation. in recent years, instruments and markets for the transfer of credit risk have been a particular focus of change. new ways have been found to securitise cashflows which could not previously be traded, to unbundle the credit risk from loans and bonds, and to re - bundle credit exposures in different ways to create securities with different pay - offs. the distinction between a loan and a bond is becoming increasingly blurred. individual loans are sold into the secondary loan market, although some companies remain reluctant to see their debt traded in this way. and portfolios of loans and other cash flows, ranging from mortgage payments to recording royalties, are sold to special purpose vehicles for securitisation into tranches with different risk characteristics and maturities, from aaa to junk, and from commercial paper to long - term bonds. portfolios of bonds are also repackaged, sliced and diced in a similar way to create collateralised bond obligations. the new area of growth at present, however, is not in these sales of assets to remove them from the balance sheet. rather it is in the use of credit derivatives that leave the underlying asset on the balance sheet but transfer some or all of the credit risk. the market in credit default swaps on individual investment - grade corporate and country issuers is becoming more liquid, in some cases, we have been told, more liquid than the underlying bond market. and investment banks pricing new bond issues can increasingly look to credit default swap premia as well as to the spread over the relevant benchmark on any existing debt. increasingly, also, banks use derivatives to transfer some portion of the credit risk on a loan portfolio rather than selling the portfolio outright, creating so - called'synthetic'collateralised debt obligations. data on

simple hp filtered trend. chart 6 : financial market implied measures of inflation expectations us ( 5yr5yr from swaps ) ea ( 5yr5yr from swaps ) uk ( 5yr5yr from swaps ) per cent japan ( 1yr forward rate to 2018 from index linked bonds ) 4. 0 3. 0 2. 0 1. 0 0. 0 - 1. 0 - 2. 0 source : bloomberg and bank calculations. notes : the uk line is adjusted down by 1pp to take account of the rpi - cpi wedge. as there are very few index linked bonds for japan, the 1 year forward inflation rate in 2018 is shown as a rough proxy. bis central bankers ’ speeches chart 7 : probability of a high - impact event in the uk financial system net percentage balances short term medium term - 10 - 20 very high 2013 h2 2013 h1 2012 h2 2012 h1 2011 h2 2011 h1 2010 h2 2010 h1 2009 h2 2009 h1 2014 h2 2014 h1 2013 h2 2013 h1 2012 h2 2012 h1 2011 h2 2011 h1 2010 h2 2010 h1 2009 h2 2009 h1 high low very low - 30 net sources : bank of england systemic risk survey and bank calculations. notes : respondents were asked for the probability of a high - impact event in the uk financial system in the short and medium term. from the 2009 h2 survey onwards, short term was defined as 0 – 12 months and medium term as 1 – 3 years. the net percentage balance is calculated by weighting responses as follows : very high ( 1 ), high ( 0. 5 ), medium ( 0 ), low ( – 0. 5 ) and very low ( – 1 ). bars show the contribution of each component to the net percentage balance. chart 8 : the number of dissenting mpc members over time bank rate decisions asset purchase decisions no. of members jun. 97 jun. 00 jun. 03 jun. 06 jun. 09 jun. 12 source : bank calculations based on published data available http : / / www. bankofengland. co. uk / monetarypolicy / pages / decisions. aspx. at : bis central bankers ’ speeches chart 9 : number of meetings where at least one mpc member has deviated from the majority bank rate decisions asset purchase decisions no. of meetings internal members external members source : bank calculations based on published data available at : http : /