A single, over-arching, regulator will mean a clear line of responsibility and accountability, and it should also help to bring about greater consistency of regulatory approach. In relation to banking supervision in particular there seem to me to be real advantages in separating out the central bank’s responsibility for the stability of the financial system as a whole from the supervision of individual banking institutions. In the latter case, we have seen during the twenty or so years that the Bank has had statutory responsibility for BIS Review 18/1998  -6-  banking supervision how the public policy interest in our activities has increasingly focused on consumer protection. That is not at all a natural habitat for a central bank. It may indeed produce a conflict of interest if it causes the central bank to become over-protective of individual institutions, giving rise to moral hazard in the system as a whole. We were conscious of these tensions in the “old” Bank, although we found effective, informal, ways of reconciling them. There are therefore powerful reasons for including banking supervision among the responsibilities that are to be transferred to the FSA. The trick will be to ensure that the Bank’s capacity to identify and address emerging “systemic” financial problems - that is those which may have a significantly disruptive effect on the financial system as a whole rather than just on individual financial institutions - is not damaged in the process.
But the Bill, taken together with the MOU which I have described, sets out those wider functions much more clearly than ever before, defining our responsibilities, our powers to exercise those responsibilities, and our lines of accountability to the Government, to Parliament and to the public at large. This is a much more precise framework for the Bank’s operations, but one which I am convinced is more appropriate to our modern times. I was delighted to learn last week that I am to be allowed to continue, for the next five years, to walk out with this attractive New Lady of Threadneedle Street, and I look forward to the challenge of carrying through the very positive changes now being made to the role and structure of the Bank. BIS Review 18/1998