Source: Financial Services Register Staff total correct as at end-September 2016. 2  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  2  In financial services here in the UK we have a mixed economy. The aim is that firms are owned privately (by their shareholders or members) and run for private interests, but within a framework of regulation which makes them internalise our objectives and therefore accommodate the public interest. This system is based on the premise that a healthy element of risk-taking in the financial system is an essential part of a well-functioning economy, but that such risk-taking may become excessive without some kind of check. Few people I know seriously contest that basic premise. But firms frequently contest how we are going about securing the public interest. That tension is natural, given the system we have chosen. There inevitably are and will be significant frictional costs, as the objectives of supervisors, employees, shareholders, members, creditors and customers jostle alongside one another. This means there will be disagreements. But we shouldn’t disagree without having made a real effort to understand each other’s perspectives. I am convinced that this system (including the judgement-based, forward-looking supervisory model we have adopted for the PRA), while imperfect, is much better than the alternatives of a financial sector owned by the taxpayer or a laissez-faire, tick-box regime – especially because history teaches us that the latter may well lead to the former.
Rather, it may be dangerously procyclical. So in the immediate aftermath of the referendum, we invited – indeed encouraged – firms to apply for transitional measures to smooth the impact of the risk margin during a time of market turbulence, and I also very much welcome the European Commission’s request for EIOPA to review the risk margin’s role more broadly. Take the leverage ratio as another post-referendum example of steps we are taking to put a smoother finish on the reforms. The framework was originally introduced to mitigate the risk to financial stability of excessive leverage. In August we decided to exclude central bank reserves from the exposure measure. They do not expose a firm to additional risks: as the ultimate settlement asset, central bank reserves are a unique asset class. Leaving reserves in scope would have obstructed the effective implementation of monetary policy. But neither did we want to take them out only to see a reduction in the nominal amount of capital required to meet the UK leverage ratio standard. So in making the change, we made clear that we will recalibrate the standard to offset this impact. The policy intent of our framework is preserved, while the unintended consequence is addressed. In a similar vein, let me say a quick word on the reforms currently being discussed in Basel – specifically the review of the use of firms’ own internal models for calculating risk-weighted assets and therefore their capital  7  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  7  requirements.