On 11 December 2025, the Bank of England (BoE) published a speech by Randall Kroszner (External member of the Financial Policy Committee) given at given at the 20th High-level meeting on financial stability and regulatory and supervisory priorities jointly organised by the Arab Monetary Fund, the Basel Committee on Banking Supervision and the Financial Stability Institute of the Bank of International Settlements on promoting innovation while guarding against financial stability risks.

In this speech Mr Kroszner sets out a ‘practical guide’ to promoting innovation while maintaining financial stability, intended for supervisors and macroprudential authorities dealing with innovation. He further explains that he considers there to be three stages to this:

  • Understand the innovation, including what drives its value to the wider economy, and its impact on and interaction with the broader financial system.
  • Identify and assess potential risks, in the context of a cost-benefit analysis of benefits of the innovation vs its financial stability impacts.
  • Determine what policy response, if any, is appropriate, and stay alert to the potential for unintended consequences further down the line.

In this speech Mr Kroszner focuses on the second stage of the process to offer a practical framework for identifying and assessing the potential risks of an innovation, and the implications for financial stability, which involves breaking down the challenge of the new and unfamiliar into the more familiar channels of risk or “fragilities”, and argues that three familiar channels of leverage, liquidity and interconnectedness can be used as part of this stage. He also highlights that he considers a lesson to be that while innovations may be new, the risk channels remain the same and, further, the challenge is to apply these traditional risk channels or fragilities to new contexts. In addition, he applies this framework to two examples, namely stablecoins and private credit, to highlight the different ways in which innovation in the financial system can create new challenges.