But as then Bank of England Director of Financial Stability, Andrew Haldane, wrote in his very prescient 'Half Way Up the Stairs' paper in Central Banking Journal in August 2014: "With more activity outside the banking system, and with the banking system itself better protected, the financial system and economy may become less prone to the low-frequency, high-cost banking crises seen in the past. But that is not the end of the story. Risk, like energy, tends to be conserved not dissipated, to change its composition but not its quantum. So it is possible the financial system may exhibit a new strain of systemic risk – a greater number of higher-frequency, higher-amplitude cyclical fluctuations in asset prices and financial activity, now originating on the balance sheets of mutual funds, insurance companies and pension funds.


“These cyclical fluctuations could in turn be transmitted to, and mirrored, in greater cyclical instabilities in the wider economy. In this world, it would be very difficult for monetary, regulatory and operational policy to beat an orderly retreat. It is likely that regulatory policy would need to be in a constant state of alert for risks emerging in the financial shadows, which could trip up regulators and the financial system. In other words, regulatory fine-tuning could become the rule, not the exception.


“In this world, macro-prudential policy to lean against the financial cycle could become more, not less, important over time. With more risk residing on non- bank balance sheets that are marked-to-market, it is possible that cycles in financial assets would be amplified, not dampened, relative to the old world. Their transmission to the wider economy may also be more potent and frequent. The demands on macro-prudential policy, to stabilise these financial fluctuations and hence the macro-economy, could thereby grow.


“In this world, central banks’ operational policies would be likely to remain expansive. Non-bank counterparties would grow in importance, not shrink. So too, potentially, would more exotic forms of collateral taken in central banks’ operations. Market-making, in a wider class of financial instruments, could become a more standard part of the central bank toolkit, to mitigate the effects of temporary market illiquidity droughts in the non-bank sector. In this world, central banks’ words and actions would be unlikely to diminish in importance. Their role in shaping the fortunes of financial markets and financial firms more likely would rise. Central banks’ every word would remain forensically scrutinised. And there would be an accompanying demand for ever-greater amounts of central bank transparency. Central banks would rarely be far from the front pages."


BUT THIS IS ANYTHING BUT THE WHOLE STORY


Haldane’s paper may be more than a decade old, but it describes in broad terms much of what has happened in the meantime, and identifies some of the key shifts in balance sheet risks. But this is anything but the whole story, and certainly not one which can be comprehensively covered in a short article. Some of the other factors to consider are ‘Monetary Liquidity’, above all that provided via the mechanism of Quantitative Easing (QE) has much to answer for, even if the topic of asset price inflation, particularly since the GFC and latterly the pandemic, still appears to be largely a taboo area for discussion, despite it playing a key role in increasing social inequality, above all in crushing individual aspirations for owning a home for example. The fact is that rather than oiling the wheels of credit availability for non-financial corporations, as was the original stated though very much theoretical intention, the primary impact was to increase credit availability for, and flows into trading of financial assets.


The more insidious developments of the past two decades plus relate to electronic trading, the seismic shift from active to passive fund management,


28 | ADMISI - The Ghost In The Machine | Q2 Edition 2026


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