The Bank had some guidelines on the metrics it would tolerate - for example, there was an expectation that about one-third of deposits plus one-fifth of acceptances  10  should be matched by liquid assets. And the  Bank showed willing when it came to enforcing this, though notably only through moral suasion rather than any formal sanction. The Governor would sometimes meet the prospective leader of a bank should there be a change in leadership, and he would expect to be notified of any significant transactions, a fact that Samuel Montagu (whose business is part of HSBC’s private banking arm today) was sharply reminded of in 1957 when he 11  reportedly neglected to update the Governor on a potential M&A deal . Overall though, much of this interaction was based on courtesy rather than any expectation that the Bank’s approval was a pre-requisite or necessary. There was a relationship to be sure but it was all very informal; the terms supervisor and supervised would have sounded out of place. There were no hard and fast requirements and the approach was minimalist in style. 7  For example, through the granting of waivers on the publication of balance sheet data. Originally set up in 1914 to manage difficulties in payments between countries at the start of World War One. 9 Fforde, John.
Regulatory arbitrage  I have spoken extensively about the steps we have taken, especially over the past few years, to build a robust regulatory framework and maintain a fit but lean army of supervisors to ensure it is implemented. It is worth noting here that we are not pig-headed about the specific way in which all elements of the regulatory framework fit together. Where we see something is not working as well as intended, we are prepared to make adjustments as long as we do not jeopardise financial resilience as a consequence. Take the modification the PRA made last year, in which central bank reserves were excluded from the exposure measure in the UK leverage ratio. This change was made to ensure the effective transmission of 19  All speeches are available online at www.bankofengland.co.uk/speeches  19  monetary policy was not impaired and was recently followed up with a proposal to increase the minimum leverage ratio requirement from 3% to 3.25% to maintain the resilience of the standard overall. Where it makes sense to make a design improvement to better align with policy intent, we will do so. But on the whole, my sense is that we have the right shape of regime. So with reforms to the regulatory framework almost complete, how do we as supervisors remain vigilant in defending it? I mentioned that the PRA’s supervisory approach relies on a healthy dose of judgement.