andrew bailey : monetary and financial stability - lessons from recent times speech by mr andrew bailey, governor of the bank of england, at the institute of international finance, washington dc, 12 april 2023. * * * it is a great pleasure to be back in washington. there is plenty going on and a great deal to talk about, so thank you to the iif and oliver wyman for organising this event. i want to pick out big issues we face, and try to set out how they fit together and the challenges they give rise to. in recent weeks, we have seen the crystallisation of problems in a few parts of the banking sector. this is against a background of a necessary sharp tightening in monetary policy to bring down inflation from levels that are much too high. all of this has to be set against the most serious global pandemic for at least a century and the most serious war in europe since 1945. let me therefore draw a first set of conclusions and propositions from what is going on. the post crisis reforms to bank regulation have worked. today i do not believe we face a systemic banking crisis. when i look at the uk banks, they are well capitalised, liquid and able to serve their customers and support the economy. this positive assessment of financial stability is important for monetary policy. in our case monetary policy set by the mpc should be able to respond to the macro implications of any dislocation to credit markets to the extent that they influence the outlook for inflation and thus deviations of inflation from target, just as the mpc conditions its policy decisions on asset price and balance sheet developments on all other occasions. that's natural. but, what we have not done – and should not do – is in any sense aim off our preferred setting of monetary policy because of financial instability. that has not happened. that outcome depends on having institutional structures governing decisions on monetary policy and financial stability. internationally the picture remains more mixed on the latter. let me next move on to the first stage of what i will call developments in money. many central banks, the bank of england included, are now implementing quantitative tightening ( qt ), the reversal of the quantitative easing ( qe ) we had previously used. qe has worked through its effects on interest rates and asset prices more generally. those effects are temporary and their size is state contingent, being larger in times of crisis and market upheaval. we can think of qt likewise, except that

( 1878 ), pp. 383 - 396. bis central bankers ’ speeches it is hardly surprising that only a third of people believe markets work in the interests of society. 2 the more people see, the less they like. people trust markets less with age. and yet, most people think markets will become ever more important. and they ’ re right. as i wrote this week to g20 leaders, the structure of financial system has changed significantly since the crisis. virtually all of the net credit since the crisis has been from the bond markets and the size of assets under management has increased by 60 % to $ 74 trillion. real markets don ’ t just happen. they depend on the quality of the market infrastructure. that means hard infrastructure, the plumbing of markets that determines the mechanics of markets ; and soft infrastructure, like standards and codes that define how market participants should behave. robust market infrastructure is a public good. but like many public goods it risks being undersupplied. if taken for granted the infrastructure that supports markets won ’ t keep pace with their dynamism ; just as it failed to do so in the run - up to the crisis. we all have a responsibility to stop this from happening again. that ’ s why i am delighted that so many people are here today, joining those that have already participated in panels in manchester and cambridge. i am also very pleased that we will be hearing from many others who are attending parallel forums in birmingham and edinburgh. and that people are already sharing comments, ideas and thoughts on social media. for the first time, people who connect with markets from all sides and in all ways are being brought together. not just bankers, traders and regulators ; but companies, investors, workers, academics, judges, trade unionists and journalists. that ’ s important. because we all rely on markets and we are all affected by them. and because everyone who connects with markets can help rebuild the real markets we need. the good news is that today isn ’ t the beginning of this process. over the past seven years, a huge programme of reform has been underway to fix the fault lines that led to the crisis and to build more resilient sources of finance to serve the real economy. 3 the uk has played a leading role, consistent with our position as the pre - eminent global financial centre. 40 % of global foreign exchange trading goes through london. half of all trades in otc interest rate derivatives. two - thirds of trading in