Lord Turner speech at Mansion House

Lord Turner speech at Mansion House; Turner speech SOT - For the last year, the FPC has been struggling with a trade-off – and I suspect our communication might have been clearer if we had been more explicit about how difficult that trade off is. We want to make our banks more resilient to future shocks, and in the medium term that will be good for credit supply to the real economy – if markets lack confidence in bank resilience they will only fund them at high rates which feed through to high priced and restricted credit. And greater resilience requires further progress towards the adequate capital ratios we didn’t have in place before the crisis. But if we simply demand higher capital ratios, and if banks achieve them via deleveraging, that would be bad for credit supply and bad for economic growth. So we face at least a potential short-term trade off between resilience and lending. Ideally we wouldn’t start from here – we would have insisted that capital and liquidity buffers were built up during the boom years – both slowing the boom down and allowing us now to release those buffers, to help maintain real economy credit. But saying we ideally wouldn’t start from here isn’t good enough. We have to find creative ways forward which as best possible both increase resilience and support lending and as a result, maintain nominal demand. That was the aim of the package of measures announced in June. The Bank of England providing greater liquidity insurance through the activation of the Extended Collateral Term Repo facility, and the FSA adjusting our bank liquidity guidance to reflect greater central bank insurance, and to make it easier for banks to use their liquidity buffers when needed. And the Bank of England launching the Funding for Lending Scheme to support new bank lending to the UK economy, while at the FSA we have made adjustments to our capital regime to allow additional FLS lending to be supported by capital buffe...