sheets ( relating to off - balance sheet instruments like derivatives for instance ). energy firms for example have relied extensively on derivatives to hedge against price movements. and the rise in energy prices last year triggered margin calls on those derivatives that put some firms in immediate liquidity stress. the bank and hm treasury ’ s energy markets financing scheme was initiated to ensure that liquidity stress did not turn needlessly into insolvency. we can also see some evidence of the borrower resilience channel at play, with investment intentions distributed unevenly across firms. the bank ’ s decision maker panel ( dmp ) survey tells us that corporates above the 90th percentile of indebtedness are expecting to reduce their investment by almost 5 percentage points more over the course of this year in response to higher interest rates than firms below it. if firms cut back investment excessively, or if productive firms forego investment opportunities, the effects could be persistent. i ’ ll talk more about this later when i turn to our secondary objective, but it should be clear that scarring of this kind can affect long - run growth. how resilient is the supply of finance to uk corporates? the future resilience of lenders and borrowers will reflect not only macroeconomic developments and idiosyncratic business factors, but corporates ’ ability to access funding too. sudden or unanticipated disruptions to the supply of credit could amplify stress, particularly for highly indebted companies, or companies reliant on short - term debt. research shows that the credit crunch following the gfc caused direct damage to companies and the real economy over and above the effects of a normal downturn. back then, banks with weaker capital ratios and those more exposed to the us mortgage market constrained lending activity by more than other lenders as they focused on rebuilding their own balance sheets. this had wide - ranging consequences : as i ’ ve mentioned before, those directly affected by this credit crunch cut their investment more than unaffected companies. these same companies also experienced weaker productivity growth and were more likely to fail. and other companies exposed to these directly affected companies reduced their own employment, grew more slowly and achieved lower productivity. there is evidence this had a sizable impact in aggregate. studies show that the excessive tightening of corporate financing conditions during the gfc accounted for 33 - 50 % of the increase in sme unemployment in the united states, while contributing to 12. 5 - 30 % of the

. figure 1 : lender and borrower resilience channels the first operates through lender resilience and brings the risk of a ‘ credit crunch ’. over - indebted companies might face challenges servicing their debt. and if they default, lender losses can test lender resilience and hence provision of credit to the economy more broadly. the second operates through borrower resilience and brings the risk of ‘ debt overhang ’. in a downturn, more highly indebted corporates can reduce investment and employment by more than those with less debt, as we saw during the global financial crisis ( gfc ). this behaviour can amplify macroeconomic downturns, further affecting corporate resilience, and potentially also increasing losses for lenders on other forms of lending. uk corporate debt fell after the gfc, but has risen since as firms took advantage of low borrowing costs and favourable economic conditions. with uk corporates now navigating an increasingly challenging macro environment, risks to financial stability can materialise through either channel. chart 1 : uk corporate debt to earnings has remained high since recovering from post - gfc lows corporate debt to earnings over time ( in percent ) ( a ) ( b ) ( a ) sources : association of british insurers, bank of england, bayes cre lending report ( bayes business school ( formerly cass ) ), deloitte, financing & leasing association, firm public disclosures, integer advisors estimates, lcd an offering of s & p global market intelligence, london stock exchange, ons, peer - to - peer finance association, eikon from refinitiv and bank calculations. ( b ) these data refer to uk pnfcs only. earnings are defined as businesses ’ aggregate gross operating surplus, adjusting for financial intermediation services indirectly measured. how resilient are uk corporates? uk firms have faced a series of shocks in the form of covid, a sharp rise in input prices, and a rapidly tightening financial environment. and the end is not yet in sight ; the mpc projects economic growth to flatline for the next couple of years. the resilience of lenders could be impacted if these headwinds result in large number of business insolvencies, or if insolvencies are concentrated in particular sectors. as everyone in the room is undoubtedly aware, since the ban on winding up petitions was fully phased out in early 2022, ins