: i ’ ll begin with a very brief account of the development of macroprudential policy frameworks since the crisis ; i ’ ll then explain why i think interaction with monetary policy, and therefore the gains from formal co - ordination of the two, are often overstated, particularly in more open economies with floating exchange rates. ( one relevant observation here is that some countries had a much worse experience than others during the financial crisis – the uk versus australia is an example – despite having somewhat lower inflation. this suggests that, at least in open economies, financial stability depends much more on prudential policy than on monetary policy. ) hoping you ’ ll forgive the clumsy word, i ’ ll then make some remarks about the difference in the “ measurability ” of the performance of the two policies. there ’ s a short concluding section at the end. i : macro - prudential policy, monetary chart 1 : uk banks now much better capitalised policy and the limited costs of separation the global financial crisis prompted a radical overhaul of financial regulation. much of this involved the rules for individual institutions, most obviously minimum levels of capital for banks. in the uk, banks ’ equity is now around 5 % of their unweighted assets, around 14½ % on a riskweighted basis. these ratios are many times what they were prior to the crisis ( chart 1 ). recognising the feedback mechanisms that so sources : pra regulatory returns, published accounts and bank calculations. note : refers to major uk banks. for detailed definitions see notes to chart b. 1 in the november 2017 financial stability report. amplified the severity of the crisis, there were also reforms designed to ensure the stability of the financial bean ( 2010 ) and svensson ( 2015 ). tucker ( 2011 ). all speeches are available online at www. bankofengland. co. uk / speeches system as a whole. extra capital is now required for institutions judged to be systemically important. trading in many derivatives has been shifted to central clearing houses, and the associated collateral requirements tightened. and in several countries new authorities have been created to identify and mitigate system - wide risks, using what is known as “ macro - prudential ” policy. in the uk, macro - prudential policy is conducted by the financial policy committee ( fpc ), housed within the bank of england. mirroring the set - up for the bank ’ s monetary policy committee ( mpc ), the f

how long it would take, possessing only this information, to conclude that the likelihood of such an event had changed. the precise answer depends on what one means by “ conclude ” and how sure the observer is of her prior belief12. but imagine, for illustration, that after a relatively long period with several such episodes, our observer ’ s best guess is that the per - annum chances of a serious problem in the financial system are 8 % – she expects it to happen only once every 12½ years, on average ( i ’ m thinking of something less severe and less infrequent than the “ once - in - a - century ” financial crisis of 2008 ). what she doesn ’ t know is that, thanks to some beneficial piece of prudential legislation, the chart 9 : learning about rare events takes a long time likelihood has actually fallen to 4 % a year. chart 9 shows how her estimate of the probability is likely to evolve over time. because these events are rare this happens only very slowly. even if she ’ s not that sure of her initial 8 % estimate – the blue line illustrates the case where the standard deviation around her prior is 2 % points – it ’ s still likely to take more than 100 years for the observer ’ s central estimate to fall even half way to the truth ( i. e. to 6 % ). if the observer ’ s wrong but confident ( the red line illustrates the case with a 1 % - point standard deviation around the initial 8 % prior ) one would expect it to take well over half a millennium to get to that point. king john and the source : bank calculations. barons might have tightened prudential regulation in the magna carta and her acknowledgement of its benefits would even now be somewhat grudging. this is, as i say, a wholly unrealistic experiment because we get to see far more than the simple occurrence ( or non - occurrence ) of a financial crisis. our sceptical observer would presumably be aware of the prudential legislation and, more importantly, its effects on things that relate to financial risk ( asset valuations and banks ’ capital ratios, for example ). that information would allow a much faster updating of estimated risk than in chart 9. in the real world, the information set available to the fpc, and by which its performance can be judged, is richer still. having seen several such events, in many countries, we know quite a bit about what typically precede