the pandemic in a much stronger position than in 2008, with at least $ 1trillion in additional collateral against over the counter ( otc ) derivative exposures ; [ 2 ] and a significant increase of central clearing in otc markets. ccps in this period functioned as intended. very significant and sudden changes in asset prices did not lead to counterparty credit risk – actual or anticipated. there were no major clearing member defaults during the pandemic, so clearing was not tested to the limit. but there was no panic about counterparty credit risk, no ructions in the interest rate swap markets. uk ccps were able to provide clearing services without disruption. however, the episode highlighted a feature of the reformed system : in periods of stress, losses are realised faster. market participants are forced to post sufficient collateral that reflects the market volatility promptly. this is key to addressing the build - up of counterparty credit risk that had been at the root of the devastating global financial crisis. but it also meant that some market participants faced a liquidity crunch and a different type of panic as investors scrambled to get their hands on cash ( and particularly u. s. dollars ). margin calls in aggregate were large over the stress period. initial and variation margin increased significantly, with the increase in initial margin ( im ) at major global ccps totalling around $ 300billion in march 2020 and the increase in variation margin ( vm ) flows peaking at $ 140billion during the height of the stress in mid - march. central banks had to step in to restore market stability in a big way. over the course of 2020, g10 central bank balance sheets rose by $ 8 trillion. [ 5 ] had central banks not acted, the financial stability consequences could have been severe. russia - ukraine the first quarter of 2022 saw another episode of unprecedented volatility across financial markets as russia invaded its neighbour. once again, we saw shocks, this time in some commodity and energy markets. again, we saw big margin calls at ccps. losses ( and corresponding gains ) on derivative positions spiked across february and march 2022, primarily in markets experiencing the largest shocks. the margin exchanged to reflect those losses and gains ( vm ) across uk ccps in q1 2022 were larger than those observed during the 2020 covid crisis. uk ccps ’ aggregate initial margin requirements also increased, but by relatively less than we saw during q1 2020. [ 7 ]

. despite the speed with which bank rate was cut to 0. 5 % in late 2008 and early 2009, and the rapid move to quantitative easing, the economy is still looking fragile. during the pre - crisis period, mpc members recognised in a number of speeches the possibility that the upward trends in property prices and in the growth of credit were increasing the risk of a period of economic instability. for example, as long ago as 2003, charlie bean suggested : “ action taken today to reduce the build - up of imbalances might pay off in the longer term by reducing the future uncertainty that the policymaker will face as imbalances unwind. ” 2 at around the same time i commented, with reference to the rising household debt / income ratio, that this “... may have increased the risk from policy error, or from an adverse shock to the household sector. ” 3 and andrew large argued : “ the key issue world trade monitor, source : netherlands bureau for economic policy analysis. bean ( 2003 ). barker ( 2003 ). for monetary policy is that the more capital gearing or leverage increases, the greater the vulnerability to shocks and the consequent adjustment to consumption behaviour. ” 4 one conclusion might be that the depth of the present crisis might have been mitigated if the mpc had taken the view that, in those circumstances, it was preferable to miss the inflation target on the downside in the short - term. some former members of the mpc have certainly argued more recently 5 that it would have been preferable to have “ leant against the wind ” of credit growth by having had higher interest rates during the mid - 2000s. but on the whole, i continue to think that there are a number of problems with this proposal. firstly, it is unclear how much higher uk interest rates would have needed to be to have kept the expansion of credit and debt to an acceptable level ( not least as there is considerable uncertainty about what that level might be ). it seems likely that interest rates might have needed to be substantially higher, in real terms, to have had any noticeable effect. in this case, cpi inflation could well have seen an extended period below target. ( the cpi was in any case below target for the first 18 months after the change to cpi from rpix as the key inflation measure. ) there would in these circumstances have been a risk of a damaging loss of credibility in the inflation targeting regime – although it would clearly have had