– the basel process. there will be differences in implementation at the edges, reflecting national features, but the outcomes are broadly aligned. this alignment is important both to limit system - wide risk and to ensure appropriate competitiveness among banks. 3 / 9 bis - central bankers'speeches currently, we are implementing what should be the last leg of the post financial crisis capital reforms – known as basel 3. 1. given the advances made by the uk authorities in increasing the safety and soundness of the banking system after the gfc, we expect that basel 3. 1 will have a relatively marginal impact on the overall level of capital for uk banks. the key thing here is that across jurisdictions it is implemented faithfully, neither more nor less. and, as we get near to finalising the post - crisis reforms this is the moment to check whether we have achieved a broad alignment of capital requirements across countries. i say this because now is the important moment in time to carry out this check. to conclude on this issue, banks should be able to make decisions on risk taking unconstrained by concerns about the capacity of their balance sheets to support that risk in a wide range of plausible states of the world. that is where we are today, and the approach has served us well over the events of recent years. i am going to stay with bank liabilities and funding costs for the next issue. this concerns the rates paid on deposits and the net interest margin or nim. the last year has illustrated well how central the nim is to the returns that banks make, and also how important it is to the public's perception of banks and competition among them. i will start with some history which is important to understanding what has gone on with nims. starting again before the financial crisis, when the bank rate was in what can be described historically as more normal territory – i. e. above near zero rates – it was typical for the average funding cost of banks to be a bit below the official bank of england rate. the average nim for the major banks pre - crisis was 3. 1 %. for the decade between the end of the financial crisis and the onset of covid, the average nim was 2. 8 % and the average return on assets for the major banks was 0. 4 %. the lower nim may have reflected several forces at work. one of the main ones, if not the main one, was that when bank rate fell to near zero as the

at the centre of the financial crisis and that amplified and transmitted stress to other parts of the financial system. much of this shift is the result of the post crisis regulatory reforms. as the financial stability board ( fsb ) noted in its report to the g20 this year, ‘ a series of measures are eliminating toxic forms of shadow banking and transforming the remaining into resilient market - based finance ’. in a nutshell, market - based finance has become a bigger part of the global system, more broad based regionally and less engaged in the riskier aspects of shadow banking. from a financial stability perspective, that is generally a good thing. there are a number of aspects of the growth in market - based finance that reduce financial stability risks. most obviously there is the benefit of diversification. a strong, market - based channel of financial intermediation in the economy avoids over - reliance on the banking system and creates resilience. fsb assessment of shadow banking 2017 mark carney letter to g20 leaders, 3 july 2017 all speeches are available online at www. bankofengland. co. uk / speeches as a number of commentators have observed the recovery in the us was faster than in other countries, despite the damage to the banking system, in part because the market - based channel was less affected and able to continue to provide finance to the economy. the banking systems in many of the crisis - affected countries have begun to lend again. but in the five years following the crisis, virtually all of the increase in lending to the private non - financial sector in advanced economies came through market - based finance. the benefits however are not just diversification of the channels of financial intermediation. there is also the benefit of diversity for individual investors. and of course, market - based finance enables investors to invest in equity, which in financial stability terms is the most effective way to share risk. market - based finance, generally speaking, is more able to share risk and pass losses back to investors than the banking system. investment funds do not carry the same solvency risks as banks as investors are entitled only to the market value of their investments. in a crisis, the valuation of the assets and of the liabilities of investment funds broadly move in the same direction, whereas for banks assets can go down in value while the liabilities remain fixed. that is not completely true of course. financial and synthetic leverage does exist in the world of market - based finance, and i will return to