Andrew G Haldane: Towards a common financial language1 Speech by Mr Andrew G Haldane, Executive Director, Financial Stability, Bank of England, at the Securities Industry and Financial Markets Association (SIFMA) “Building a Global Legal Entity Identifier Framework” Symposium, New York, 14 March 2012. *  *  *  The views are not necessarily those of the Bank of England or the Financial Policy Committee. We would like to thank Alan Ball, Peter Davies, Priya Kothari and Colin Miles for comments and contributions. In the first book of the Old Testament, God punishes the builders of the Tower of Babel for their folly. The choice of punishment is revealing. God replaces the Earth’s then-common language with multiple tongues. The costs of that original sin are still being felt. Today, there are nearly 7000 languages spoken globally across fewer than 300 nation states. Linguistic diversity has of course cultural benefits. But this comes at some considerable economic cost. A common language has been found to increase dramatically bilateral trade between countries, by more than 40%.2 It has been found to increase bilateral investment between two countries by a factor of three or more.3 In Iceland at the start of the century as much as 3% of annual GDP was, quite literally, lost in translation.4 Finance today faces a similar dilemma. It, too, has no common language for communicating financial information. Most financial firms have competing in-house languages, with information systems silo-ed by business line.
The Financial Stability Board is overseeing efforts to improve data, including on global banking interconnections, shadow banks and OTC transactions data.23  21  Jorgenson et al (2010), Reinsdorf and Yuskavage (2010). 22  Arthur (2011). 23  Financial Stability Board / International Monetary Fund (2011). 8  BIS central bankers’ speeches  Yet the full benefits of this deeper and richer array of financial network information will only be realised if these data can be simply aggregated within and across firms. That calls for common data describers and standards. Recent legislation recognises that. In the US, the Dodd-Frank Act created the US Treasury’s Office of Financial Research (OFR), which has as a core objective data standardisation.24 In Europe, the new European Markets Infrastructure Regulation (EMIR) embeds common data standards across the EU.25 The roots of these legislative initiatives were grown during the September 2009 G20 summit.26 Out of this, the Financial Stability Board (FSB) initiated a programme which culminated in a report to G20 Finance Ministers and Central Bank Governors in October 2010. This set out a vision of common standards which would allow global financial data aggregation.27 Like Berners-Lee’s 1989 memo, it was vague but exciting. But in the reports that followed, two crucial ingredients were identified: a Legal Entity Identifier (or LEI) and a Product Identifier (or PI).28 Though these acronyms are new, the principles underpinning them are not. LEIs are effectively the nouns of a new financial vocabulary, naming the counterparties to each financial transaction.