The Bank of England (BoE) has published a speech given by Chris Salmon, Executive Director, Markets, BoE. The speech is entitled Market Functioning.
At the beginning of his speech Mr Salmon covers the sterling FX market and the lessons learnt from two particular episodes last year: the period immediately following the EU referendum and the ‘flash crash’ a few months later. Mr Salmon then discusses the sterling corporate market and explains how the analysis of market structure shaped the design of the BoE’s corporate bond purchase scheme, and how the scheme may have affected the functioning of the market.
In his concluding comments Mr Salmon states that a detailed understanding of market structure is a core part of effective central banking. In particular, so long as central banks design their operations carefully, drawing on studies of the relevant market structures, they retain the capability to broaden the range of policy tools at their disposal. The lesson from the flash crash emphasises that central banks also need to deepen their understanding of the features of modern market structures that exacerbate these vulnerabilities and why they seem to be occurring across a broader range of markets.
View Market functioning – speech by Chris Salmon, 24 January 2017