are financed materially by short - term debt, they should be subject to bank - type regulation and supervision of the resilience of their balance sheets. that would apply to some kinds of finance company. it might apply to securities dealers too. in the eu, many dealers are “ investment firms ” and so are already subject to the same directives as banks on capital adequacy. that is not true of finance companies in many jurisdictions. perhaps there should be a size threshold for applying bank - style capital and liquidity regulation to such non - bank banks. bis central bankers ’ speeches securities dealers and the “ rehypothecation ” of client assets that last set of points was about firms acting as principals. major issues arise from the use of client assets – money and securities – to finance the principal risk - taking of some financial firms. this has become apparent from the lehman and mfg bankruptcies. quietly in the background, something extraordinary has happened over the past decade or so. let me explain. you place £x of your securities portfolio with your broker / dealer in safekeeping ( as a subcustodian in a way ). you borrow a much smaller amount of money from your broker and, reasonably enough, they take some of your securities as collateral ; in effect, they have financed your holding of that part of your securities portfolio. an observer might think the rest of your portfolio would sit in a segregated client account. not a bit of it. unless you have been very careful, the broker / dealer has repoed out your securities for cash, and used the proceeds to finance its own businesses. to make this simpler, imagine you have placed surplus cash with your broker - dealer. as likely as not, it is being used to finance the dealer ’ s business. whether we are talking about your cash or your securities, if you can call them on demand and they are being used to finance your broker ’ s business, that used to be called..... banking. i suggest the following in this area : only banks should be able to use client moneys and unencumbered assets to finance their own business to a material extent ; and that should be a clear principal relationship. legal form should come into line with economic substance. for non - banks, any client moneys and unencumbered assets should be segregated and should not be used to finance the business to a material extent. it should, however, remain permissible for non -

), ‘ public expectations of uk inflation ’, bank of england quarterly bulletin, autumn. is the intuitive reason why a credible policy regime should help to produce more stability in output as well as inflation. challenges inflation is low, expectations are well anchored, and the real economy works better as a result. these achievements are important and they were hard won. we mustn ’ t take them for granted. but nor can we live in the past. so what are today ’ s challenges? i see these in three main areas : assessing current economic developments ; effective communication ; and understanding the new trends that will shape the future. ( i ) assessing current developments broadly speaking, the task for the mpc is to control inflationary pressure by ensuring that the level of aggregate demand in the economy is more or less in line with aggregate supply. the first and most basic challenge comes in translating this deceptively simple idea in to practice. it is hard enough to estimate how fast demand is growing now from incomplete, preliminary or just plain puzzling information. it is harder still, and even more important, to look ahead over the two or three year horizon relevant to setting interest rates. but that ’ s only part of the story. the rate at which demand can be allowed to rise without leading to an upturn in inflation depends both on how much spare capacity there is in the economy now and on factors that determine the future growth in supply, such as productivity and labour availability. and finally, we need to consider what effect our own actions will have on longer - term interest rates and through them on the wider economy. inflation targeting provides a credible framework within which these complicated issues can be properly considered. that ’ s important, but it does not change the need to make judgements, or even make the judgements any easier. data get revised ; models over simplify ; forecasts are fallible. it ’ s essential to invest in state of the art techniques ; indeed the bank has just introduced a new macro economic model. but progress depends just as much on recognising all the uncertainties and allowing for them in a systematic way. the monthly interest rate decision requires a complex assessment of all the evidence. we need to be both sceptical and open minded, if we are to avoid major error : sceptical when it comes to interpreting the data, but alert for signs that we may be getting it wrong. the decision to raise rates in february, while inflation was still well below the new