The Bank of England set out some ideas about how to prevent the build-up of risks within the financial system in a discussion paper published on November 21. The paper identified two areas where action might be needed.

The first was when the banking system in “aggregate” was taking excessive risks. The solution might be to increase either minimum capital ratios across the board – or to increase risk-weightings for those assets which were overheating.

The second was when a particular institution would cause damage to the rest of the system if it collapsed. The BoE said the solution might be to increase capital ratios for institutions which were especially “networked”.

• Discussion paper