But given the highly varied circumstances of UK banks, we concluded that it is more sensible in the first instance for FSA to work out the details in its supervision of individual firms. These will be meaningful discussions, and FSA will report back to FPC on progress. That measure is being taken in order to make the UK banking system more resilient, and so better able to maintain credit supply, in the face of threats that could crystallise any time over the next year or so. 4  BIS central bankers’ speeches  The FPC also looked at whether any developments in markets might pose a longer-term threat to stability. We were struck that a renewed Search for Yield is already evident in some markets, and that this is reflected in innovations that could add to the complexity and opacity of the system. The drift of Exchange-Traded Funds away from their original bearings is striking. The Bank team have briefed various international bodies, including the Financial Stability Board, on this over the past year. Compared with their vanilla forebears, there are now ETFs incorporating leverage, active management and synthetic structures. As FPC discussed, it is important for the European Securities Markets Authority to act to ensure that its regime for investment products does not fall further behind. HMT and FSA lead those negotiations for the UK.
Paul Tucker: Macro and microprudential supervision Speech by Mr Paul Tucker, Deputy Governor for Financial Stability at the Bank of England, at the British Bankers’ Association Annual International Banking Conference, London, 29 June 2011. *  *  *  Introduction: redrawing the Social Contract for banking. The past month has been pretty busy. It has seen the publication of the draft legislation for reforming the UK’s regulatory architecture; the launch of the high-level blueprint for banking supervision under the future Prudential Regulation Authority; the Chancellor’s comments on the Vickers Report; and the first meeting and decisions of the Financial Policy Committee, the UK’s new macroprudential body. That’s just in the UK! There is plenty going on internationally too. Next month the G20 Financial Stability Board will publish two consultative papers: one on the greater loss absorbing capacity needed by systemically important financial institutions, and the other on overhauling resolution regimes to cope with distress at SIFIs. It is understandably hard for the banking system and the market to make sense of how all this fits together. I therefore want today to organise it in terms of redrawing the Social Contract between banking and the rest of society. Traditionally, the Contract was as follows. As deposit takers, banks are permitted to issue money, enabling them to profit by providing liquidity-insurance services to the rest of the economy. They earn a spread between the rate paid on transactions deposits and the rate charged on loans that, on average, more than compensates for credit risk.