finance was to be servant of the economy, not master. this, truly, was a regulatory revolution. see https : / / www. bis. org / bcbs / basel3. htm. all speeches are available online at www. bankofengland. co. uk / news / speeches and @ boe _ pressoffice not all proposals for international regulatory reform found universal favour. in a paper prepared for the jackson hole central banking shindig in 2012, i questioned whether the very complexity of financial regulation might have contributed to the increasing fragility of the financial system. as you did not fight fire with fire, you did not fight financial complexity with regulatory complexity. that risked making a bad situation worse, a complexity problem squared rather than halved. to be honest, had i not called the paper “ the dog and the frisbee ” i doubt anyone would have read it. but i did, they did and the result was a sharp intake of collective breath among my colleagues around the basel committee table - and beyond. on the other side of the atlantic, one of those drawing breath was the then - governor of the bank of canada, mark carney. i am not sure what mark went on to do next. but it was not just internationally where the regulatory reform bandwagon was rolling. in the uk, the vickers commission reforms created a fire - break between banks ’ services to the domestic economy and their other activities. complexity scientists would have approved. and sweeping institutional reforms were also underway in the uk, with the fsa ’ s prudential responsibilities merged into the bank and a new consumer protection agency, the financial conduct authority ( fca ), created. the return of prudential regulation to the bank was not, fortunately, a reversion to the pre - 1997 orthodoxy. the global financial crisis had laid bare the costs of separating finance and the economy, the micro and macro – a separation that had also been a feature of the bank in the past. crisis needed to be the catalyst for change, forging a link between the bank ’ s analytical brain and its regulatory hands. and so it was, with the creation of a new policy body, the financial policy committee ( fpc ). the fpc was charged with safeguarding systemic risk in the uk using new macro - prudential tools. an interim fpc was set up in 2011 ahead of a new statutory framework being put in place. and the interim fpc gave way

can be confident that they know the answers. what we do know so far is that there has been a sharp downwards inventory correction and a contraction of investment notably in ict which was so buoyant before, with associated declines in equity prices and in us imports. consumption growth, supported by a strong housing market has so far held up rather better than might have been expected. looking forward, on the positive side, one could point to the strong monetary policy response to the slowdown, and to the recent tax rebate, which have yet to have their full effect. there were some suggestions in recent capital goods orders figures that the rate of decline in investment spending may now slow. and the rate of inventory liquidation had stabilised pointing to a turn at some point so long as consumption continued to be reasonably well sustained. consensus opinion, or so it seemed to me, had become modestly optimistic. at least that was the prospect until tuesday and the appalling terrorist attacks in new york and washington. the immediate impact of those events was a sharp fall in already weak equity prices worldwide, and fears that the trauma would undermine confidence - including consumer confidence in the us, already vulnerable to rising unemployment. even before the terrorist attacks, the pessimist could point to the imbalances within the us economy, including the weakness of private sector savings, the overhang of past investment excesses, and the us external deficit, which would, at some point, need to be corrected. on that view one could envisage a gradual adjustment over time in which case the us might face a protracted period of nearstagnation ; or - if you were really pessimistic - the adjustments might be more abrupt, implying a period of negative growth and possible further financial instability. the tragic events on tuesday will have encouraged such pessimism. for what it is worth, while i recognise the downside risks, i remain - perhaps stubbornly - cautiously optimistic. on the immediate situation, i was immensely impressed that the federal reserve and other us agencies have been able to keep essential payments and settlements services functioning as they have, which has allowed markets internationally to continue to function. and i was encouraged that equity markets in europe yesterday recovered some of their immediate losses. of course it is much too soon to assess the lasting impact of the events of the past two days. but the fundamental forces affecting the us economy have not changed. and in terms of confidence effects, it would be a mistake to underestimate