That was not just deeply regrettable for the institutions concerned, but also it damaged a proud and long tradition of sound banking in Scotland. It pained me, in my role as the person responsible for resolving a number of these problems, to see the lack of regard for the basics of a well run bank, the foundations which must be there to be sound and successful. I have spent the last seven years also responsible for the Bank of England’s banking operations, and I know from this experience that unless you really understand your balance sheet and its risks, the systems and control environment that supports the balance sheet, and you have the basics needed well covered – the reconciliations work, the right management information available promptly – you aren’t doing your job. It isn’t sexy or headline grabbing, but it is surely what the good Scottish bankers of the past taught us to do, and what I hope is back with the current generation. The financial crisis has moved on since those earlier days. Over the last twelve months, concerns with both sovereign states and their banking systems have intensified in other parts of Europe. Recently, the IMF and European authorities have moved to put in place a substantial package of support for Ireland.
In an important financial centre like Edinburgh, we need to be well connected, and to understand your assessment of the threats to financial stability and we need to explain what we are doing to tackle these threats. Our market intelligence function under my colleague Paul Fisher plays an important role here, and is in frequent contact with the Scottish financial community. This contact will be even more important under the new arrangements in which the Bank will be responsible for macroprudential policy and its focus on the stability of the financial system, with a new policy making body, the Financial Policy Committee, or FPC. Alongside and feeding into the Bank’s macroprudential role will be our new responsibility for microprudential supervision of deposit takers, insurers and major securities dealers, also in a new body, the Prudential Regulation Authority, or PRA. It is therefore a period of major change at the Bank, and we are taking very seriously our role in building a system of regulation in the UK that must meet the very reasonable expectations of the public for a safer and sounder financial system. The overarching objective for the Bank is to put the stability of the financial system at the heart of the mission of financial regulation. We are now in the fourth year since the financial crisis started in the middle of 2007. The Scottish banking system took a pounding during the earlier stages of the crisis.