of the 2008 recession and no more ” wouldn ’ t work. such a target wouldn ’ t be fit for purpose all the time or for all of the financial system. for some parts of the system, whose failure might not cause much economic damage, such a target might be too severe. at some times, such as after a credit boom, such a target might be too loose. and what if the bad shock the system might need to deal with is fundamentally different to the 2008 recession? what if, for example, it ’ s a cyber attack? the general point is that it isn ’ t possible to specify a target for how resilient the system should be that is appropriate for all forms of threat, across all forms of finance. all speeches are available online at www. bankofengland. co. uk / speeches and even if one day it were possible to specify a complete set of resilience targets, that would be proved quickly out of date as the financial system evolved and the circumstances in which it operated changed. any operational target must be flexible so that it can keep up with events. hardwiring into legislation isn ’ t a recipe for flexibility. so the challenge was how to specify a clear mandate. parliament ’ s secret sauce for doing so had three ingredients. the first was to specify the mandate not as a single target but as a set of preferences. put simply, parliament ’ s intent, enshrined in law, is that we should build as much resilience in the financial system as possible, without harming the expected growth of the economy over the medium to long run 6. we must aim for a level of resilience that involves short - run sacrifices only insofar as they are outweighed by long - run gains. this is our rule for constructing a resilience target for each area of the system at each point in time and for each threat. it hardwires flexibility, allowing us to adapt as new threats emerge and the system evolves. the second ingredient was to mandate that we must show our handiwork in translating these preferences into operational goals. for each of our powers we must maintain a policy statement, setting out our approach to their use. our actions must be supported by cost - benefit analysis. and we must report regularly on how our policies contribute to financial stability. this ensures that, when we set targets for how resilient each part of the system should be, we can be held to account

to be weighed against the more obvious potential economic benefits of the single currency. the question has been just how significant are those risks likely to be. that will, ultimately, always be a matter of judgement. but it would be premature, in my view, to reach that judgement based on today ’ s abnormal circumstances. now we, in this country, have of course been battered about, like everyone else, by the global turbulence. there is no way that we could have avoided its impact – either through fiscal or monetary policy. we are an integral part of the global economy. and we had particular problems of our own. in our case, in marked contrast to the eurozone, and despite the dampening effect of an already exaggeratedly strong exchange rate, we were confronted, in the early part of last year, with the prospect of excess demand and accelerating inflation, and policy had been tightened to head that off. but we, like others, were then hit in the autumn by the renewed turmoil in the global economy. that caused a sharper fall in external demand, but it also caused both business and consumer confidence to plummet – so that prospect of moderate overall slowdown we ’ d been deliberately trying to engineer quite suddenly threatened to turn into an unnecessarily sharp downturn, with the risk that the rate of inflation would fall significantly below the government ’ s 2½ % inflation target. so we promptly reversed gear – cutting interest rates very sharply – by 2½ % to as low as they have been since the mid - 1960s. that has helped both business and consumer confidence to recover – from very low levels – and the prospect now is that, after a pretty flat economic performance either side of the year - end, overall demand and output growth will pick up steadily to around trend by the middle of next year. but, despite these interest rate cuts, the pound has actually strengthened – notably against the euro – in part, as i suggested earlier, because of weaker overall demand pressure on the continent. so we are again impaled on the horns of our earlier dilemma, arising from continuing imbalance between the stronger domestic and weaker externally - exposed sectors of the economy. believe me – it is not a comfortable place to be. the question is what to do? of course, as with everything else, where you stand depends on where you sit. the suffering sectors – most of agriculture, large parts of manufacturing industry and some services sectors – are in no doubt. cut interest rates again