On the first of these options, we would want to look at which requirements the smallest firms find the most complex. For example, if it turned out that small firms struggle with some of the complexities of our Pillar 2 framework for liquidity, could we simplify the framework for them? Alternatively, on the second option one could imagine a regime in which more liquidity requirements get added as a firm’s funding model becomes more complex (See Figure 3). Other countries around the world have taken various approaches to this simplification issue. For example, in Switzerland small banks are subject to simpler prudential requirements if they have high enough leverage 7  and liquidity ratios. Australian small banks are instead always subject to simpler risk-based requirements. 8  On the other side of the globe, the smallest Canadian banks are proposed to be subject to simpler risk-based  7 See for example: https://www.finma.ch/en/supervision/banks-and-securities-firms/kleinbankenregime/ 8 See for example: https://www.apra.gov.au/sites/default/files/response_to_submissions__revisions_to_the_capital_framework_for_adis_0.pdf 7  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  7  9  requirements as well as a more tailored liquidity requirement. Whereas in the rest of North America, most 10  US banks face increasingly more severe risk-based, leverage ratio, and liquidity requirements as they grow 11  in size. As you can see, it’s not at all obvious from this picture what is the right approach to simplification, and there will also surely be lessons to draw from how small firms deal with the current crisis.
So boring in fact that when I gave an inordinately long speech on this topic I went all the way to Switzerland so that I could inflict it on their bankers rather than all of you – had I done otherwise I am sure the Lord Mayor would finally have banned me from speaking at this event. But this is a very, very important issue for financial services in the UK because it is the fundamental bedrock of increased dynamism in our  4  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  4  regulation. I am delighted therefore that this is the approach the government has proposed in its consultation on the Future Regulatory Framework, and I hope that it will be taken forward as the wider regime develops. Graduation  At this point I fear that the chair whom I annoyed so much last year is becoming restive again, fearing a long lecture on regulatory plumbing. So let me stick with dynamism, but move us on to something a little more tasty that we have been cooking up in the PRA kitchen. We made changes to simplify the credit union regime last year both because it is a good idea and because we are not constrained by EU regulation in that area.