Challenges for the Future∗

The dinner last night we shall all remember for a long time. We were fortunate enough to hear three Federal Reserve chairmen—each of them a giant in his own way—and a reply from Don Kohn that was not only insightful and thoughtful but moving too. Tributes are one thing, but the Bank of England puts its money where its mouth is. Alan Greenspan originally loaned Don Kohn to the Bank, as we couldn’t afford the transfer fee. But as soon as Don was out of contract, we swooped to sign him for our new Financial Policy Committee (FPC). The respect and affection in which Don is held at the Bank of England is demonstrated by the presence here of three of us from the Bank. So what lessons have Don and we at the Bank drawn from the crisis? Let me relate these to the three topics of the conference— monetary policy, liquidity provision, and macroprudential policy, three of the core functions of central banks. The financial crisis has brought these core functions closer together, highlighting the complementarities as well as blurring the lines between them. The separation of monetary from financial stability policies no longer seems so clear-cut, and this new world presents central banks with many challenges.