john gieve : the credit crunch and the uk economy speech by sir john gieve, deputy governor of the bank of england, to the family office leadership summit, london, 22 september 2008. * * * introduction in recent days we have seen extraordinary developments in us financial markets. at the start of last week we saw the collapse of lehman brothers and the merger of merrill lynch and bank of america ; by friday the us treasury had rescued aig, issued a guarantee of money market funds and an outline plan for a resolution trust that is now in congress. and this morning the federal reserve announced that goldman sachs and morgan stanley would become regulated bank holding companies. but i want today to concentrate on the broader economic impact of the crisis in credit markets, which began over a year ago with the downturn in the us sub - prime housing market. while the epicentre has remained in the us, it has already had a major impact on the structure of our banking sector. northern rock was among the first casualties. and this year we are seeing a significant consolidation within the uk banking sector, with santander purchasing alliance & leicester, nationwide absorbing two smaller building societies, and most recently the merger of hbos and lloyds tsb. the turmoil has also affected all of the bank ’ s work ; from the setting of interest rates, to the scale and structure of our market operations, and to our joint work with the fsa and treasury to deal with institutions under stress and to help design an effective international response to the crisis. for example, like other central banks, we have adapted our money market operations to provide the liquidity the banking system as a whole has required. first, we have allowed banks to increase their reserve balances at the bank, increasing the size of our overall provision of central bank money ; second, within that larger total, we have shifted the balance towards longer - term lending as the terms of market finance have shortened ; third, we have widened the collateral we accept for longer - term repos. and in april, we introduced a special scheme to provide banks with up to three years ’ finance for legacy assets which have become illiquid. last week we offered extra sterling liquidity through our usual open market operations and provided us dollar liquidity as part of co - ordinated action with the federal reserve, ecb, bank of japan and swiss national bank. we also extended the window in which banks can swap their legacy assets under the special liquidity scheme until january next

the continued growth and importance of this entrepreneurial sector. but why do we care about small business in the first place? well, it ’ s quite simple. the federal reserve system, as the nation ’ s central bank, has important roles to play in supporting the vitality of our economy and promoting community development. small businesses are the primary driver of job growth in the united states, they create economic opportunity in local communities, and they help drive innovation across the economy. the new york fed and fellow reserve banks are supporting small business in a number of ways. first, by producing the annual small business credit survey, which is fielded by all 12 reserve banks, to provide timely information on the sector, how they are doing, their financing needs and their access to credit. second, by providing a one - stop resource of all of our insights 1 / 2 bis central bankers'speeches and analysis to policymakers, community leaders, and service providers through the fed small business website. third, through regular meetings of our small business advisory councils, to get an understanding of real conditions on the ground. fourth, through our access to capital workshops, which provide technical assistance on access to credit for small businesses, covering topics like traditional lending, alternative and emerging sources of capital, and export financing. and, finally, through meetings like these. so, since small businesses matter to the health of our economy, and latino - owned small businesses are the fastest growing, what do we know about them? the report, which will help inform much of today ’ s discussion, combines the results from the federal reserve ’ s small business credit survey, slei ’ s survey of us latino business owners and interviews conducted by slei and interise, to offer a unique and unprecedented perspective into this entrepreneurial class. the report examines the business conditions and credit environment for latino - owned businesses, and compares latino firms to non - latino firms, as well as how their experiences vary across major metro areas. while i don ’ t want to get ahead of my colleague, claire kramer, and our partners from slei and interise who will present the results of the report shortly, there are a couple of themes that caught my attention. first, latino small business owners face significant financial barriers even after accounting for performance factors, including a disproportionate reliance on high - interest credit products. those impediments manifest themselves at all stages of the business growth, from start - up to scale - up and beyond. second