system and in the real economy. a year ago, the uk housing market was clearly developing significant momentum. prices were growing much faster than incomes. borrowers were increasingly driven to borrow a greater amount relative to their annual income. the amount of such new mortgages at high loan to income ( lti ) ratios – borrowers borrowing over 4 times their annual income – had exceeded its pre - crisis peak. the risk the committee saw was that if the number of high lti mortgages continued to grow, there would be increasing numbers of highly indebted households very vulnerable to a change in economic circumstances. this would increase both macroeconomic volatility and systemic risk. the committee came to the view that this was a macroprudential risk that needed to be insured against. it recommended the introduction of limits on the proportion of new mortgages at high lti ratios. the momentum in the housing market cooled and the limits have not so far been reached. it is impossible to say how much this was a result of the committee ’ s action ; a number of other important factors were also in play. but it is an example of the fpc ’ s approach to adjusting policy to respond to changing risks. and it is also an example of the committee taking a broad view of financial stability that goes wider than direct risks to the banking system. a further example of how macroprudential risk can develop outside the banking system is the lending and investment that happens through financial markets rather than through banks. to take one example, the global asset management sector has grown by 60 % since 2003 and is now a similar size to the global commercial banking system. this will probably be one the july 2015 fsr identified the following major risks facing the uk financial system : the global environment notably greece and china ; market liquidity ; uk current account deficit ; uk housing market ; misconduct ; and cyber risk. bis central bankers ’ speeches of the new frontiers of macro ( and micro ) prudential regulation. the fpc is exploring whether there are significant risks from changes in these markets and in particular how asset managers manage liquidity to meet redemptions in times of stress. there is also work underway on this internationally. macroprudential policy is still a work in development. over the past few years much of the fpc ’ s work has been learning by doing. as we learn, we will have to set out clearly and publicly the development of our overall policy framework – how resilient we believe the

system needs to be, how we think about macroprudential risk, what risks we believe fall into the domain of macroprudential and how we will use our policy instruments. as part of this, the committee intends to set out by the end of the year our view on the adequacy of the overall capital framework for banks, now that the main post crisis reforms have been set. have we gone too far? financial crises are unruly affairs. the great crisis of 2008 – 9 was certainly no exception. risks crystallised in unexpected ways and moved between parts of the financial system that we had not appreciated were connected. a large number of regulatory reforms were launched to address the many and dangerous fault - lines that the crisis exposed. it is only now, as we move through the implementation of these reforms, that we can start to see the whole picture of how they work together in practice. inevitably, as the new framework starts to bite, the question is asked whether the reforms, as they interact in practice, produce “ unintended consequences ” that are worse than the risks they are trying to reduce. and, more fundamentally, with economic activity still below pre - crisis trends, whether we have gone too far and whether regulation is now preventing the financial system from doing its job to support growth in the real economy? i imagine this debate will be widespread internationally and will last for some time. in the light of how and why macroprudential policy has developed and where we now are, i would make the following observations. first, we should accept that the complex, interlocking set of reforms of recent years will need fine tuning and adjustment as they are implemented. there will be issues we have to revisit. indeed, this process is already beginning. the bank of england and the ecb have together launched a review of the treatment of securitisation. the fpc and the international community is looking at the issue of liquidity in financial markets which many argue has been adversely affected by regulation. following up the fair and effective markets review, the bank of england will host an open forum to take stock of the reform agenda in financial markets. and the european commission has just launched its review of the eu regulation on bank capital. indeed, given the depth and complexity of the financial crisis and the corresponding depth and complexity of the reforms, we should expect rather than be surprised that we will need to refine and adjust some of the regulatory reforms. second