Whatever political decision is taken, bank supervisors will not only do all they can to make the transition to a new regime as smooth as possible; they will also, in the long run, try to reduce unnecessary inefficiencies where possible. In December last year, the PRA2 published a draft proposal for a post-Brexit supervisory approach. I very much appreciate the spirit behind this approach.
But the greater the degree of leverage in an economy, the greater its vulnerability to unexpected shortfalls in demand and to other miscalculations. Although the fears regarding business leverage have been confined mostly to specific sectors in recent years, concerns over potential systemic problems resulting from the vast expansion of derivatives have reemerged with the difficulties of Enron.