Sarah Breeden: Financial stability at your service

Speech by Ms Sarah Breeden, Deputy Governor for Financial Stability of the Bank of England, based on remarks given at Wharton-IMF Transatlantic Dialogue, Washington DC, 10 September 2024.

The views expressed in this speech are those of the speaker and not the view of the BIS.

I took over as the Bank's Deputy Governor for Financial Stability just under a year ago. Today I'll step back to offer some remarks on how we think about financial stability and some of the challenges we are considering in the current juncture. An accompanying article in the Bank's Quarterly Bulletin provides an overview of the full range of work that the Bank does to further its financial stability objective.

To preview the most important points, I hope to convince you of the following:

• The Bank supports financial stability in a range of ways, in close coordination with other authorities. Microprudential regulators, such as the Prudential Regulation Authority and the Financial Conduct Authority, ensure that individual institutions or markets are resilient. The Financial Policy Committee (FPC) addresses risks to the system as a whole. You can't have macroprudential policy without the micro, but micro alone isn't enough. Indeed, systemic thinking can lead you to different answers.
• Our approach to financial stability must always have system-wide dynamics in mind, not just the individual entities in the system. But systemic thinking is only a means to an end: the end is service provision, with the system reliably providing the vital services to households and businesses, such as payments, loans and insurance, that matter to the economy as a whole.
• The best contribution we can make to sustainable economic growth is to ensure that the system provides vital services even as shocks occur. In doing so, we must avoid the stability of the graveyard. And while there are clearly limits to the contribution financial regulation can make to growth, in some cases, for some services, it may be possible to make small adjustments that increase growth potential without undermining financial stability.

What is financial stability?

I'll begin my remarks by setting out in simple terms what we're trying to achieve. The Bank of England's statutory objectives are price stability and financial stability. Price stability is well understood, and it is even specified in the form of a quantitative target by the Government. But financial stability is harder to pin down – it is most commonly understood as the absence of instability. Indeed, its precise definition has been the subject of much debate in policy and academic circles over the years.