Paul Tucker: Shadow banking, financing markets and financial stability Remarks by Mr Paul Tucker, Deputy Governor for Financial Stability at the Bank of England, at a Bernie Gerald Cantor (BGC) Partners Seminar, London, 21 January 2010. *  *  *  Many thanks for input to Andrew Bailey, Michael Cross, Colin Miles, Victoria Saporta, and for earlier conversations with David Rule (now FSA) and Bill Winters. For background work to Michael Grady and for secretarial support to Sandra Bannister and Cheryl Feeney. This should be the crucial year in establishing a framework for a more resilient global financial system. Much of the authorities’ work is about how to do better in well-established areas of policy: bank capital requirements, liquidity requirements, supervision, and so on. But new areas are being debated, or revisited, too. Those debates are more profound. They include whether we can develop macroprudential instruments and regimes for “taking away the punchbowl” from future financial-system parties before they get out of control. Whether we can develop regimes for the resolution of banks and other key financial firms that can reinject market discipline into the financial system, while at the same time ensuring continuity of essential financial services to the economy in the event of severe distress at large, complex, cross-border firms. And whether the structure of the financial system needs to be constrained by the authorities. This evening I am going to focus on one part of the “structure” debate: shadow banking.
Roles of the Bank of Thailand in developing the bond market A High-level Domestic Bond Market Development Steering Committee was set up by the Government in January this year. The committee is chaired by the Finance Minister and comprises high-level representatives from both the public and private sectors, including the Bank of Thailand. The aim of the committee is to promote the development of the domestic bond market in five key areas, namely, (1) the primary market (2) the secondary market (3) taxes (4) market infrastructure and (5) market information. As for the Bank of Thailand, we have been tasked with the responsibility to develop an active secondary market. To meet this challenge, the Bank of Thailand has mapped out a multi-year strategy from which our work plan for bond market development this year will focus on six areas. First is the development of the private repo market. The repo market will provide bond market participants with the tools to hedge their bond position, as well as to manage liquidity more effectively. The private repo market will also provide an important link between the money market and the bond market, meaning that liquidity in the secondary bond market can be substantially improved once a well-functioning private repo market is in place. Second, the Bank of Thailand will coordinate with the Thailand Securities Depository to set up a "Bond Lending and Collateral Management Unit" to activate the bond lending business. This again will help facilitate the private repo market and enhance overall market liquidity.